Press Release

DBRS Morningstar Confirms Ratings on Weser Funding S.A., Compartment 2 and Weser Funding S.A., Compartment 3

Structured Credit

April 21, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed the following ratings on the notes issued by Weser Funding S.A., Compartment 2 (Weser 2) and Weser Funding S.A., Compartment 3 (Weser 3):

Weser 2:
-- Class A Notes at A (high) (sf)
-- Class B Notes at BBB (high) (sf)

Weser 3:
-- Compartment No. 3 Fixed Rate Notes due 2056 (Fixed Rate Notes) at A (high) (sf)

The rating on the Weser 2 Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in May 2055. The rating on the Weser 2 Class B Notes addresses the ultimate payment of interest (timely when it is the senior-most class of notes outstanding) and the ultimate repayment of principal on or before the legal final maturity date in May 2055. The rating on the Weser 3 Fixed Rate Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in July 2056.

The confirmations follow annual reviews of the transactions and are based on the following analytical considerations:
-- The portfolios performance, in terms of the level of delinquencies and defaults, as of the March 2023 payment date for each transaction;
-- The one-year base case probability of default (PD) and default and recovery rates on the outstanding receivables;
-- The fact that no early amortisation event has occurred;
-- The current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

Both transactions are revolving cash securitisation transactions backed by a portfolio of euro-denominated loans granted to large corporates and small and medium-size enterprises (SMEs) located in Germany and other European countries. The loans are originated and serviced by Oldenburgische Landesbank AG (OLB).

The Weser 2 transaction closed in May 2020 and has a three-year revolving period scheduled to end in May 2023. During this period, OLB has the option to sell additional loan receivables to the Issuer on a daily basis as long as the eligibility criteria and concentration limits are complied with. The revolving period will end prematurely if certain early amortisation events occur, including if the monthly default ratio exceeds 2.5%, the monthly delinquency ratio exceeds 6.0%, or the gross cumulative default rate exceeds 4.0% of the initial balance.

The Weser 3 transaction closed in July 2021 and also has a three-year revolving period, ending in July 2024, during which time OLB has the option to sell additional loan receivables to the Issuer on a daily basis in accordance with the outlined eligibility criteria and concentration limits. The revolving period is scheduled to end prematurely if certain early amortisation events occur (e.g., if the monthly default ratio exceeds 1.0%, if the monthly delinquency ratio exceeds 4.0%, or if the gross cumulative default rate exceeds 1.0% of the outstanding balance at the relevant cut-off date).

PORTFOLIO PERFORMANCE
As of the March 2023 payment date, the overall Weser 2 portfolio consisted of 1,465 loan drawings under 770 loans with an aggregate principal balance of EUR 1.1 billion. As of the March 2023 payment date, the overall Weser 3 portfolio consisted of 376 loan drawings under 269 loans with an aggregate principal balance of EUR 400.0 million. The portfolios are performing within DBRS Morningstar’s expectations. As of the March 2023 payment date, there were no loans in arrears for more than 90 days and no defaulted loans in both transactions.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar updated the portfolios’ one-year base case PD assumption to 1.9% for Weser 2 and 2.5% for Weser 3. DBRS Morningstar updated its default rate and recovery assumptions to 30.6% and 25.7%, respectively, at the A (high) (sf) rating level and to 24.2% and 26.5%, respectively, at the BBB (high) (sf) rating level for Weser 2; and to 35.2% and 24.7%, respectively, at the A (high) (sf) rating level for Weser 3.

CREDIT ENHANCEMENT
As of March 2023, the credit enhancements available to the Class A and Class B Notes for Weser 2 were 27.2% and 21.9%, respectively, and the credit enhancement available to the Fixed Rate Notes for Weser 3 was 31.1%. In both cases, the credit enhancements are unchanged from closing since the transactions are still in their revolving periods.

Both transactions also benefit from their respective cash reserves, which are currently at their target balance of EUR 6 million for Weser 2 and EUR 2 million for Weser 3. The cash reserves are available to cover shortfalls in senior expenses and interest on the notes during the life of the transactions. Once the outstanding portfolio balance has been reduced to zero, the cash reserves will be released through the waterfall and will be available to pay down outstanding principal on the notes.

The Bank of New York Mellon, Frankfurt Branch acts as the account bank for both transactions. Based on the DBRS Morningstar private rating of The Bank of New York Mellon, Frankfurt Branch, the downgrade provisions outlined in the transactions’ documents, and other mitigating factors inherent in the transactions’ structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes in both transactions, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact 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 transactions structures in its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs” (10 June 2022); https://www.dbrsmorningstar.com/research/398252/rating-clos-backed-by-loans-to-european-smes.

Other methodologies referenced in these transactions are listed at the end of this press release.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transactions, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transactions’ legal documents.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action for each transaction.

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 investor reports provided by QuantFS GmbH, and loan-by-loan data from the European DataWarehouse GmbH.

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

For Weser 2, at the time of the initial ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

For Weser 3, at the time of the initial rating, 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.

The last rating action on Weser 2 took place on 22 April 2022, when DBRS Morningstar confirmed its ratings on the Class A and Class B Notes at A (high) (sf) and BBB (high) (sf), respectively.

The last rating action on Weser 3 took place on 22 April 2022, when DBRS Morningstar upgraded its rating on the Fixed Rate Notes to A (high) (sf) from A (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available at 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):
-- PD Rates Used: Base-case PD of 1.9% and 2.5% for Weser 2 and Weser 3, respectively, a 10% increase of the base case and a 20% increase of the base-case PD.
-- Recovery Rates Used: Base-case recovery rate of 25.7% and 26.5% at the A (high) (sf) and BBB (high) (sf) rating levels, respectively, for Weser 2; 24.7% at the A (high) (sf) rating level for Weser 3, a 10% and 20% decrease in the base-case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery-rate levels.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Class A and Class B Notes at A (high) (sf) and BBB (high) (sf), respectively, for Weser 2. For Weser 3, a hypothetical increase of the base case PD by 20% would lead to a confirmation of the Fixed Rate Notes at A (high) (sf) while a hypothetical decrease of the recovery rate by 20%, would also lead to a confirmation of the Fixed Rate Notes at A (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would lead to a confirmation of the ratings on the Class A and Class B Notes at A (high) (sf) and BBB (high) (sf), respectively, for Weser 2, and to a confirmation of the rating on the Fixed Rate Notes at A (high) (sf) for Weser 3.

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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Helvia Meana, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
-Weser 2: 7 May 2020
-Weser 3: 7 July 2021

DBRS Ratings GmbH
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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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