DBRS Morningstar Finalises Provisional Ratings on First Swiss Mobility 2023-1 AG

DBRS Ratings Limited (DBRS Morningstar) finalised its provisional ratings on the following classes of Notes issued by First Swiss Mobility 2023-1 AG (the Issuer):

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

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

The transaction represents the issuance of Notes backed by a pool of approximately CHF 282 million of receivables related to auto leases granted by Multilease AG (Multilease; the Originator or the Seller), a wholly owned subsidiary of Emil Frey Holding AG. The underlying motor vehicles related to the auto leases consist of both new and used passenger cars, light-commercial vehicles, and motorcycles. Multilease services the receivables.

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- Transaction capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, a cash reserve, and excess spread;
-- Credit enhancement levels that are sufficient to support DBRS Morningstar's projected cumulative net loss and residual value (RV) loss assumptions under various stressed cash flow assumptions for the Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- Multilease’s capabilities with regard to originations, underwriting, servicing, and its financial strength;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality and industry diversification of the collateral and historical and projected performance of the Seller’s portfolio;
-- The sovereign rating on the Swiss Confederation, 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 includes a 39-month revolving period during which the Issuer may purchase additional receivables. During this period, the transaction will be subject to receivables eligibility criteria and concentration limits designed to prevent the deterioration of the portfolio quality. The transaction incorporates a single waterfall that outlines the allocation of the available distribution amount consisting of, inter alia, collections representing interest, principal, recoveries, the balance of the cash reserve, and income derived from authorised investments. The Notes amortise sequentially subject to note-specific target principal redemption amounts.

A nonamortising cash reserve account is equal to 1.4% of the aggregate outstanding balance of purchased lease assets as of the initial cut-off date and is available to the structure. The cash reserve provides liquidity support to the Notes, available to pay senior transaction fees and interest payments on the Notes, while also ultimately providing credit enhancement to the Notes.

All underlying contracts and the Notes are both fixed rate. The transaction is, therefore, not exposed to interest rate risk.

COUNTERPARTIES
Zürcher Kantonalbank (ZKB) has been appointed as the Issuer’s account bank for the transaction. DBRS Morningstar privately rates ZKB and concluded that it meets DBRS Morningstar’s minimum criteria to act in such capacity and the transaction contains downgrade provisions relating to the account bank that are consistent with DBRS Morningstar’s legal criteria. The Issuer’s accounts include the collection account, the payment account, and the securities account.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in Swiss Francs unless otherwise noted.

The principal methodology applicable to the ratings is: Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

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. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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/401817/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 and its agents. DBRS Morningstar received the following data and information:
-- Static, quarterly default, and recovery data from Q1 2011 to Q3 2022, split into total portfolio, private and commercial customers, and new and used subsets.
-- Dynamic monthly delinquency data from February 2011 to November 2022, split into total portfolio, private and commercial customers, and new and used subsets.
-- Residual values set for the top 10 vehicle models of Multilease at different contract tenors and permitted mileage and a comparison of the RVs forecast by a third-party provider (Auto-I-Dat).
-- A loan level pool cut and its related stratification tables as at 31 January 2023.
-- A theoretical amortisation profile of the selected pool.

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

DBRS Morningstar was supplied with one or more 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.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

-- Expected default: 1.0%.
-- Expected recovery rate: 77.7%.
-- Loss given default (LGD): 49.8% for the AAA (sf) scenario, 46.5% for the AA (sf) scenario and 39.9% for the A (low) (sf) scenario.
-- RV loss: 27.8% for the AAA (sf) scenario, 21.1% for the AA (sf) scenario, and 14.2% for the A (low) (sf) scenario.

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

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AAA (sf), AAA (sf), AAA (sf), AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf), AA (sf)
-- Class B Notes: AA (sf), AA (low) (sf), AA (low) (sf), A (high) (sf), A (sf), A (sf), A (sf), A (low) (sf)
-- Class C Notes: A (low) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf), BBB (sf), BBB (low) (sf), BBB (low) (sf), BBB (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: 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 GmbH for use in the European Union.

Lead Analyst: Miklos Halasz, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 January 2023

DBRS Ratings Limited
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London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

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 (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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: 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].