DBRS Morningstar Finalises Provisional Ratings on FACT S.A., acting in respect of its Compartment 2021-1

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by FACT S.A., acting in respect of its Compartment 2021-1 (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)

DBRS Morningstar did not assign a rating to the Class C Notes issued in this transaction.

The ratings on the Class A Notes and the Class B Notes (the Rated Notes; together with the Class C Notes, the Notes) address the timely payment of scheduled interest and ultimate repayment of principal by the final maturity date.

The static transaction represents the issuance of Notes backed by a portfolio of receivables related to both automotive lease (including those associated with the future sale of the associated leased vehicles) and loan contracts granted by Porsche Bank Aktiengesellschaft (Porsche Bank or the Seller) to private and commercial debtors in Austria. The receivables are secured by trust rights associated with vehicles and other collateral. Porsche Bank services the receivables.

The transaction is exposed to residual value risk through both operating and financial leases. However, the legal framework in Austria differs from other European markets as, under financial lease agreements, the lessee is responsible for the realisation loss at contract maturity, fully payable by corporate customers and partially payable by individual customers (75% of loss). Porsche Bank takes the full residual value risk under operating lease agreements.

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction's capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, excess spread, and the availability of the cash collateral account;
-- Credit enhancement levels that are sufficient to support DBRS Morningstar’s projected cumulative net losses and residual value losses under various stressed cash flow assumptions for the Rated Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- Porsche Bank’s financial strength and its capabilities with regard to originations, underwriting, and servicing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the Seller’s portfolio;
-- The sovereign rating of the Republic of Austria, currently at AAA with a Stable trend; and
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction’s waterfall combines interest and principal collections with available funds to redeem the Rated Notes on a sequential basis, subject to note-specific principal redemption amounts.

The structure benefits from a static cash collateral account, which is sized at 0.5% of the aggregate initial principal balance of the receivables. The cash reserve is available to cover senior expenses and interest payable on the Rated Notes only. The cash reserve may be used to repay principal on the Rated Notes when the collateral balance reaches zero.

The portfolio comprises both fixed-rate and variable-rate receivables while floating-rate Notes have been issued. The structure incorporates an interest rate swap provided by Crédit Agricole CIB (CACIB) where the notional is calculated according to the outstanding nondefault, fixed-interest-rate receivables.

COUNTERPARTIES
The Issuer bank account is held at Elavon Financial Services DAC. DBRS Morningstar privately rates Elavon Financial Services DAC and concluded that it meets the minimum criteria to act in its capacity as the account bank. The transaction contains downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.

CACIB is the swap counterparty for the transaction. DBRS Morningstar privately rates CACIB and the hedging documents contain downgrade provisions consistent with DBRS Morningstar’s criteria.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

CORONAVIRUS CONSIDERATIONS
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 continue to increase in the coming months for many asset-backed securities (ABS) transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar applied a moderate haircut to its expected recovery rate and adjusted expected default rates associated with certain commercial debtors.

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 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-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.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

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

Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found at: http://www.dbrsmorningstar.com/about/methodologies.

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.

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” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include Porsche Bank and CACIB acting in its capacity as arranger.

DBRS Morningstar received the following data and information:
-- Static default and net loss data split by used/new cars and product type;
-- Dynamic origination, delinquency, and prepayment data;
-- Summarised stratification tables of the pool as at 7 July 2021;
-- Vehicle realisation proceeds from Q3 2014 to Q1 2021; and
-- A theoretical amortisation of the pool.

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 these ratings 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.

These ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

This is the first rating action since the Initial Rating Date.

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 ratings, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the ratings (the base case):

-- Expected default: 1.2%
-- Expected recovery rate: 61.0%.
-- Loss given default (LGD): 60.3% for the AAA (sf) scenario and 57.5% for the AA (sf) scenario.
-- Residual value (RV) loss: 35.0% for the AAA (sf) scenario and 29.1% for the AA (sf) scenario.

Scenario 1: A 25% increase in the expected default and LGD.
Scenario 2: A 50% increase in the expected default and LGD.
Scenario 3: A 25% increase in the RV loss.
Scenario 4: A 25% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 5: A 50% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 6: A 50% increase in the expected RV loss.
Scenario 7: A 25% increase in the expected default and LGD and a 50% increase in the RV loss.
Scenario 8: A 50% increase in the expected default and LGD and a 50% increase in the RV loss.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios will be:

-- Class A Notes: AAA (sf), AA (sf), AAA (sf), AA (high) (sf), AA (sf), AAA (sf), AA (high) (sf), and AA (sf)
-- Class B Notes: AA (low) (sf), A (low) (sf), AA (sf), A (high) (sf), A (sf), AA (low) (sf), A (high) (sf), and A (low) (sf)

For further information on DBRS Morningstar 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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Guglielmo Panizza, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 June 2021

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

-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions (21 July 2020), https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (6 April 2021), https://www.dbrsmorningstar.com/research/376314/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020), https://www.dbrsmorningstar.com/research/367092/derivative-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 (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://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].