DBRS Morningstar Assigns A (high) (sf) Rating to Rosenkavalier 2020 UG (haftungsbeschränkt) Class A Notes

DBRS Ratings Limited (DBRS Morningstar) assigned an A (high) (sf) rating to the Class A Notes issued by Rosenkavalier 2020 UG (haftungsbeschränkt) (the Issuer).

DBRS Morningstar does not rate the Class B Notes issued in this transaction.

The rating on the Class A Notes addresses the ultimate repayment of interest and principal by the legal final maturity date of 30 September 2033.

DBRS Morningstar based its rating on information provided by the Issuer and its agents as of the date of this press release.

The notes are backed by a portfolio of fixed-rate, unsecured, amortising personal loans granted to individuals domiciled in Germany and serviced by UniCredit Bank AG (UniCredit, or the originator).

The rating is based on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- The credit enhancement level is sufficient to support the projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes.
-- The amount of the liquidity reserve that is potentially available in case of a servicing interruption or servicer termination event.
-- The originator and servicer’s financial strength and capabilities with respect to originations, underwriting, and servicing.
-- The operational risk review of the originator, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength regarding their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the originator’s portfolio.
-- DBRS Morningstar’s sovereign rating of the Federal Republic of Germany at AAA with a Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE
The transaction includes a 36-month replenishment period. During this period, the Issuer may purchase additional receivables, provided that the eligibility and replenishment criteria set out in the transaction documents are satisfied. The replenishment period may end earlier than scheduled if certain events, such as the breach of performance triggers, occur.

Unless a mandatory partial redemption event occurs during the replenishment period, the transaction would enter into the redemption period with sequential amortisation following the end of scheduled redemption period.

The transaction includes a liquidity reserve, which would be funded by the originator when its rating falls below investment grade. The funded liquidity reserve is only available up to the amount not transferred by the originator as the servicer to cover the shortfalls in senior expenses and interest on the Class A Notes. DBRS Morningstar considers such arrangement is not commensurate with a rating addressing the timely payment of scheduled interest in the highest rating categories and results in a certain linkage to UniCredit's financial strength, hereby affecting the rating on the Class A notes.

A deposit reserve will be funded by the originator for the excess of all borrowers' deposit exposure over 1% of outstanding loan balances, if the rating of UniCredit falls below investment grade. DBRS Morningstar considers the potential 1% assets set-off in its cash flow analysis.

COUNTERPARTIES
UniCredit is the account bank for the transaction. Based on DBRS Morningstar’s rating of UniCredit and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank and specially dedicated account bank to be commensurate with the rating assigned.

PORTFOLIO ASSUMPTIONS
The operating history of the originator’s consumer loan lending in Germany is relatively short. The performance to date has benefitted from a benign credit environment and has not covered the full terms of loans or an economic cycle. The recovery data provided was also not in a typical vintage format to facilitate more granular analysis. DBRS Morningstar, therefore, benchmarked the asset assumptions of this transaction to a comparable consumer loan portfolio and opted to set its lifetime gross default and recovery assumptions at 5.2% and 20%, respectively.

DBRS Morningstar analysed the transaction cash flow structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The rating is based on additional analysis as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734/.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” methodology at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The data and information used for the rating include performance and portfolio data relating to the receivables provided by the originator directly or through the arranger, UniCredit Bank AG, as follows:

-- Monthly default vintage data from October 2014 to June 2020;
-- Monthly net loss vintage data from October 2014 to June 2020;
-- Dynamic monthly delinquency data from October 2014 to June 2020; and
-- Prepayment data from January 2019 to June 2020.

DBRS Morningstar also received stratification tables in relation to the loan pool as of 31 August 2020 and its related contractual amortisation profile.

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

DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

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

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating:

-- Expected Default Rate of 5.2%, a 25% and 50% increase.
-- Expected Loss Given Default (LGD) of 80%, at 90% and 100%.

Scenario 1: A 25% increase in the expected default rate.
Scenario 2: A 50% increase in the expected default rate.
Scenario 3: A 25% increase in the LGD.
Scenario 4: A 25% increase in the expected default rate and at 90% LGD.
Scenario 5: A 50% increase in the expected default rate and at 100% LGD.
Scenario 6: A 50% increase in the LGD.
Scenario 7: A 25% increase in the expected default rate and at 90% LGD.
Scenario 8: A 50% increase in the expected default rate and at 100% LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (sf)

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

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

Lead Analyst: Kevin Chiang, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 September 2020

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

-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (28 February 2020),
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].