Press Release

DBRS Morningstar Finalises Provisional Ratings on Fortuna Consumer Loan ABS 2022-1 Designated Activity Company

Consumer Loans & Credit Cards

May 26, 2022

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings of the notes issued by Fortuna Consumer Loan ABS 2022-1 Designated Activity Company (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)
-- Class F Notes at B (high) (sf)
-- Class X Notes at CCC (sf)

DBRS Morningstar did not assign a rating to the Class G Notes or the Class R Notes also issued in this transaction.

The ratings of the Class A and Class B Notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The ratings of the Class C, Class D, Class E, and Class F Notes address the ultimate repayment of interest (timely when most senior) and the ultimate repayment of principal by the legal final maturity date. The rating of the Class X Notes addresses the ultimate repayment of interest and the ultimate repayment of principal by the legal final maturity date.

The transaction is a securitisation of fixed rate, unsecured, amortising consumer loans granted to individuals domiciled in Germany and brokered through auxmoney GmbH (auxmoney) in co-operation with Süd-West-Kreditbank Finanzierung GmbH (SWK) as the nominal originator.

The ratings are based on the following analytical considerations:
-- The transaction's capital structure, including form and sufficiency of available credit enhancement;
-- Credit enhancement levels sufficient to support DBRS Morningstar's projected cumulative net loss assumptions under various stressed scenarios;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes;
-- DBRS Morningstar’s operational risk review of SWK and auxmoney's capabilities with regard to originations and underwriting;
-- CreditConnect GmbH's capabilities with regard to servicing;
-- The transaction parties’ financial strength regarding their respective roles;
-- The credit quality, diversification of the collateral, and historical and projected performance of auxmoney’s portfolio;
-- DBRS Morningstar's sovereign rating of the Republic of Germany, 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.

TRANSACTION STRUCTURE
The transaction is static but features two more sales and transfers within five weeks of transaction closing. There are separate waterfalls for interest and principal payments that facilitate the distribution of the available distribution amount. Post-closing, the notes (except for the Class R and Class X Notes) will enter into a pro rata redemption period with amortisation amounts based on the percentages (which are the outstanding amount of each class of notes minus the related class PDL divided by the aggregate amount) until the breach of a sequential redemption trigger after which the notes will be repaid sequentially.

The transaction includes an amortising liquidity reserve funded through the issuance proceeds of the notes at closing, which is only available to the Issuer in restricted scenarios where the interest and principal collections are not sufficient to cover the shortfalls in senior expenses and interests on the Class A Notes and, if not deferred, the interest payments on the Class B, Class C, Class D, Class E, and Class F Notes.

The transaction also benefits from a PDL mechanism to capture excess spread to cure principal deficiencies. Principal funds may be used to cover certain interest shortfall. The transaction structure also incorporates interest deferral triggers to defer interest payments on the notes, conditional on the PDL debit amount and seniority of the notes.

The interest rate risk is considered to be largely mitigated by an interest rate cap.

COUNTERPARTIES
Elavon Financial Services DAC (Elavon) is the account bank for the transaction. DBRS Morningstar has a private rating on Elavon. The transaction documents contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.

BNP Paribas is the cap counterparty for the transaction. DBRS Morningstar has a Long-Term Issuer Rating of AA (low) on BNP Paribas, which meets its criteria to act in such capacity. The transaction documents also contain downgrade provisions consistent with DBRS Morningstar’s criteria.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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” (29 October 2021).

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.

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” methodology 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 following data provided by auxmoney or through the arranger, Citigroup Global Markets:
-- Loan level data from June 2014 to March 2022;
-- Static default data from Q1 2017 to Q4 2021;
-- Recovery data from April 2014 to March 2022;
-- Dynamic delinquency information from 31 January 2018 to 31 March 2022;
-- Prepayment rates from 30 April 2016 to 31 March 2022;
-- Stratification tables as of 26 April 2022.

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 rating actions 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 to the parameters used to determine the ratings:
-- Expected Default Rate of 13.5%: A 25% and 50% increase.
-- Expected Loss Given Default (LGD) of 72.5%: A 25% and 50% increase.

Scenario 1: 25% increase in Default Rate
Scenario 2: 50% increase in Default Rate
Scenario 3: 25% increase in LGD
Scenario 4: 50% increase in LGD
Scenario 5: 25% increase in both Default Rate and LGD
Scenario 6: 25% increase in Default Rate and 50% increase in LGD
Scenario 7: 50% increase in Default Rate and 25% increase in LGD
Scenario 8: 50% increase in both Default Rate and LGD

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AA (sf), AA (low) (sf), AA (sf), AA (sf), AA (low) (sf), AA (low) (sf), A (sf), A (sf)
-- Class B Notes: A (sf), A (low) (sf), A (high) (sf), A (high) (sf), A (low) (sf), A (low) (sf), BBB (sf), BBB (sf)
-- Class C Notes: BBB (high) (sf), BBB (low) (sf), BBB (high) (sf), BBB (sf), BB (high) (sf), BB (sf), BB (low) (sf), B (sf)
-- Class D Notes: BB (sf), B (high) (sf), BB (sf), BB (low) (sf), B (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf)
-- Class E Notes: B (low) (sf), below B (low) (sf), B (low) (sf) and below B (low) (sf) for all other scenarios
-- Class F Notes: below B (low) (sf) under all scenarios

No sensitivity analysis is conducted for the Class X Notes.

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. 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: Roberto Perez, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 5 May 2022

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: https://www.dbrsmorningstar.com/about/methodologies.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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