DBRS Confirms Geldilux-TS-2015 S.A. Following Transaction Restructuring

DBRS Ratings Limited (DBRS) confirmed its rating of A (high) (sf) on the Class A Notes issued by Geldilux-TS-2015 S.A. (Issuer) following the transaction amendment which includes the purchase of an additional portfolio funded via an increase of the Class D Notes. Following the amendment, the outstanding balance of the Class A Notes remains unchanged at EUR 1,830,000,000 and the total portfolio is increased to EUR 2,140,000,000 from EUR 2,000,000,000.

The restructuring, which occurred on 19 July 2018, introduced a number of changes to the transaction which include:
-- Extension of the replenishment period until the payment date falling in June 2022.
-- Changes to the note structure: The initial transaction included four classes of notes and liquidity notes whereas the new structure consists of only Class A and Class D Notes. Credit enhancement of the Class A Notes via subordination has also increased to 14.5% (from 8.5% pre-restructuring).
-- Increase of the total portfolio by EUR 140 million to EUR 2.14 billion from EUR 2 billion, which was funded by additional issuance of the Class D notes.
-- Unicredit Luxembourg S.A. (UCL or the Seller) planned to merge with Unicredit Bank AG (UCB) which is expected to take effect from 20 July 2018. As a result of the merger, all rights and obligations of the Seller under this agreement will be assumed by UCB by operation of law.
-- The exclusion of the set-off reserve account, which exposes the transaction to possible set-off risk.
-- Changes to certain pool limits (see the summary on page 7 of the rating report) and the wind-down events definition (see the summary in an updated version of the rating report describing the DBRS analysis following the amendments which will be available on dbrs.com).

The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in December 2024.

The transaction is a cash flow-revolving securitisation collateralised by a portfolio of short-term loans (maturities ranging from a few days to one year) to German large corporates, small and medium-sized enterprises, entrepreneurs, self-employed individuals and private individuals. The loans are originated under the UniCredit EGON Loan Program (EGON), whereby the loans (bullet in interest and principal) are arranged by UniCredit Bank AG (UCB or the Originator) and extended by UniCredit Luxembourg S.A. (UCL or the Seller).

The transaction closed in July 2015 including a revolving period (which has been extended until June 2022 following the restructuring) during which the Seller had the option to sell new EGON loans to the Issuer. Given the short-term nature of the loans, the portfolio was replenished on a daily basis using the same random procedure used at closing, subject to the loan Eligibility Criteria and Portfolio Limits. The purchase price of new loans is usually paid by setting off the principal proceeds collected by the Transaction Servicer and Servicer (UCL and UCB, respectively) during the previous day.

DBRS determined the rating of the Class A Notes as follows, as per the principal methodology specified below:
-- The annualised probability of default (PD) for the securitised portfolio, determined using the arrears data supplied, was computed to be 1.4%.
-- The assumed weighted-average life (WAL) of the portfolio was 0.25 years.
-- The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the A (high) rating level.
-- The recovery rate was determined by considering the unsecured recovery rate for Germany at the A (high) (sf) rating level.
-- The Break-Even Default Rates for the interest rate stresses and default timings were determined using the DBRS cash flow engine.

PORTFOLIO ASSUMPTIONS
-- DBRS maintained its annualised PD assumption at 1.4%, considering the historical data supplied.
-- DBRS conducted a loan-by-loan analysis on the remaining pool and updated its portfolio default and recovery assumptions on the outstanding portfolio to 11.4% and 26.3%, respectively, at the A (high) (sf) rating level.

CREDIT ENHANCEMENT
Following the 2018 Restructuring, credit enhancement (CE) to the Class A Notes was 14.5%, which DBRS considers sufficient to cover expected losses assumed in line with the A (high) (sf) rating level. The CE consists of subordination of the Class D notes. The Class A Notes also benefit from a non-amortising Interest Reserve (IR), with a balance of EUR 22.00 million, which corresponds to 1% of the floating-rate notes and has been funded with the proceeds of the issuance of the Liquidity Note at closing (the Originator pays all upfront costs and expenses). The Liquidity Notes have been fully repaid from excess spread since closing.

The Interest Reserve is available to cover senior expenses, swap payments and interest shortfalls on the Class A Notes, as long as Class A Notes are outstanding. The IR will not cover shortfalls of interest coming from delinquent or defaulted loans.

Citibank N.A., London Branch is the main Account Bank provider of the transaction. DBRS’s private rating of Citibank N.A., London Branch complies with the Minimum Institution Rating, given the rating assigned to Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

UCL (and following the merger effective date, UCB) is the swap counterparty to the transaction. The DBRS private ratings of UCL and UCB meet the swap counterparty rating requirements, given the rating assigned to the Class A Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for this rating include reports and information received from UniCredit Bank AG.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 14 July 2017, when DBRS confirmed the ratings of Class A Notes at A (high) (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the “Base Case”):

-- Probability of Default Rates Used: base case PD of 1.4% and a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: base case Recovery Rate of 26.3% at the A (high) (sf) stress level and a 10% and 20% decrease in the base case Recovery Rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would lead to a confirmation of the Class A Notes at A (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% would also lead to a confirmation of the Class A Notes at A (high) (sf).

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Francesco Amato, Financial analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 July 2015

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Structured Finance Surveillance Methodology

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.