DBRS Morningstar Finalises Provisional Ratings on Asset-Backed European Securitisation Transaction Twenty, Fondo de Titulización

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by Asset-Backed European Securitisation Transaction Twenty, Fondo de Titulización (the Issuer):

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

DBRS Morningstar did not assign a rating to the Class M Notes issued in this transaction. The ratings on the Class A Notes and Class B Notes (together, the Rated Notes) address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in May 2035.

The transaction represents the issuance of Class A Notes and Class B Notes backed by a portfolio of approximately EUR 469 million of fixed-rate receivables related to auto loans and auto leases granted by FCA Capital España, E.F.C., S.A.U. (FCA; the originator) to private individuals and corporates with residence in Spain for the acquisition of new or used vehicles. The receivables are considerably seasoned at 22 months and have a relatively short weighted-average remaining term of 35 months. The originator acts as servicer of the portfolio. Part of the proceeds of the Class M Notes have been issued to fund the cash reserve and to fund initial expenses.

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.
-- Credit enhancement levels that are sufficient to support DBRS Morningstar’s 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 Rated Notes.
-- FCA’s financial strength and its capabilities with respect to originations, underwriting, and servicing.
-- The other parties’ capabilities and financial strength regarding their respective roles.
-- DBRS Morningstar’s operational risk review of FCA, which DBRS Morningstar deems to be an acceptable originator and servicer.
-- The credit quality, diversification of the collateral, and historical and projected performance of the portfolio.
-- DBRS Morningstar’s current sovereign rating of the Kingdom of Spain at “A” with a Stable trend.
-- 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 allocates payments through separate interest and principal waterfalls and benefits from an amortising EUR 2.25 million cash reserve corresponding to 0.5% of the Rated Notes. The reserve has been funded through part of the proceeds of the Class M Notes. The cash reserve covers senior fees and interest on the Rated Notes and forms part of the interest available funds.

Unlike the previous A-BEST transaction issued in Spain, A-BEST 20 does not have a revolving period in which principal proceeds may be used to purchase additional receivables. The repayment of the notes will be purely sequential and will start on the first payment date taking place in November 2021. Interest and principal payments on the notes will be made on a monthly basis on the 23rd day of every month. As both the issued notes and the underlying receivables pay a fixed rate of interest, there is no interest rate risk associated with the transaction.

At inception, the weighted-average portfolio yield and the discount rate are 7.4%, well exceeding the senior costs and interest payable by the Issuer on the notes; hence, the transaction benefits from a considerable excess of interest collections that the Issuer can apply to offset defaults that may occur during the current and previous collection periods. However, any excess spread that is not used on one payment date, will be released towards junior payments in the waterfall flowing back to FCA as originator through Class M variable return.

COUNTERPARTIES
FCA acts in several critical roles for the transaction, including originator, servicer, and collection account provider. The interruption of critical services might affect the Issuer’s ability to timely fulfil its obligations. DBRS Morningstar believes that FCA’s experience and financial strength mitigate the risk of serious disruption.

BNP Paribas Securities Services, Sucursal en España is appointed as paying agent and Issuer’s account bank for the transaction. DBRS Morningstar privately rates the counterparty and has concluded that it meets DBRS Morningstar’s minimum criteria to act in its capacity and the transaction is expected to contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s legal criteria. The Issuer's accounts include the collection account, the payments account, the cash reserve account and the securities account.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

CORONAVIRUS DISEASE (COVID-19) CONSIDERATIONS
The coronavirus and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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 security (ABS) transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar assumed a moderate decline in the expected recovery rate.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include the originator, FCA.

DBRS Morningstar received static default vintage data (six months in arrears) and static recoveries vintage data for the period from H1 2011 to H2 2020 as well as dynamic delinquency and prepayment data. Stratification tables and loan-level portfolio information were also provided as at 31 August 2021.

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):

-- Probability of default (PD) used: Expected Base Case PD of 3.1%, and 12.7% and 10.3%, respectively, for AA (sf) and A (high) (sf) scenarios, on a 25% and 50% increase in the applicable PD.
-- Recovery rate used: Expected recovery rate of 32.9%.
-- Loss given default (LGD) used: Expected LGD of 78.5% and 76.7%, respectively, for AA (sf), and A (high) (sf) scenarios, on a 25% and 50% increase in the applicable LGD.

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

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

-- Series A Notes: AA (low) (sf), A (high) (sf), AA (low) (sf), A (sf), A (low) (sf), AA (low) (sf), A (sf) and A (low) (sf).
-- Series B Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (sf), A (low) (sf), BBB (high) (sf) and BBB (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: Álvaro Astarloa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 September2021

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27
28046 Madrid, Spain
Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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 Methodology (30 July 2021), https://www.dbrsmorningstar.com/research/382486/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- 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.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.

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].