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

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on 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)

The ratings on 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 in July 2031. The ratings on the Class C Notes, Class D Notes, Class E Notes, and Class F Notes address the ultimate payment of interest (timely when most senior) and the ultimate repayment of principal by the legal final maturity date. The rating on the Class X Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the May 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The transaction is a static securitisation backed by a portfolio of unsecured consumer loans brokered through auxmoney GmbH (auxmoney) in co-operation with Süd-West-Kreditbank Finanzierung GmbH, granted to individuals domiciled in Germany and serviced by CreditConnect GmbH, a fully owned subsidiary of auxmoney. The transaction closed in May 2022 and the Issuer acquired the total EUR 225.0 million collateral portfolio in three phases: EUR 176.5 million at closing, EUR 39.3 million on 30 May 2022, and EUR 9.2 million on 30 June 2022.

PORTFOLIO PERFORMANCE
As of the May 2023 payment date, loans that were in dunning levels 1 and 2 represented 5.1% and 1.7% of the outstanding collateral balance, respectively, while loans that were in dunning levels 3 and 4 represented 1.4%. Gross cumulative defaults amounted to 4.5% of the aggregate portfolios initial balance, 35.0% of which has been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and maintained its base case PD and LGD assumptions at 13.5% and 72.5%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the rated notes. As of the May 2023 payment date, credit enhancement to the Class A, Class B, Class C, Class D, Class E, and Class F Notes was 62.2%, 39.4%, 25.3%, 17.3%, 9.9%, and 7.5%, respectively, up from 47.0%, 30.0%, 19.5%, 13.5%, 8.0%, and 6.2% at the time of the DBRS Morningstar initial rating, respectively. The Class X Notes do not benefit from credit enhancement and are repaid using any available excess spread remaining in the transaction following the payment of senior items in the revenue priority of payments.

As of the May 2023 payment date, the unrated junior-most Class G Notes record an uncleared principal deficiency ledger (PDL) debit balance of EUR 1.38 million as excess spread in the transaction is insufficient to offset the monthly defaults on the portfolio as a result of high prepayments experienced since closing, which greatly reduced the portfolio balance. As a result of the uncured PDL, the sequential redemption trigger was breached on the December 2022 payment date and the notes began to amortise sequentially starting from the January 2023 payment date.

The transaction benefits from liquidity support provided by an amortising cash reserve, available to cover senior expenses and interest payments on the Class A to Class F Notes. The reserve has a target balance equal to 0.7% of the outstanding balance of the Class A to Class E Notes, subject to a floor of EUR 0.44 million. As of the May 2023 payment date, the reserve was at its target balance of EUR 0.78 million.

Elavon Financial Services DAC (Elavon) acts as the account bank for the transaction. Based on DBRS Morningstar's private rating on Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA (BNP) acts as the hedging counterparty in the transaction. DBRS Morningstar's public Long Term Critical Obligations Rating of AA (high) on BNP is consistent with the first rating threshold as described in DBRS Morningstar's "Derivative 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 transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

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

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

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

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 monthly transaction reports provided by U.S. Bank Global Corporate Trust Limited (the cash administrator), servicer reports and additional information provided by auxmoney, and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial ratings, 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 this transaction took place on 26 May 2022, when DBRS Morningstar finalised its provisional ratings on the Class A, Class B, Class C, Class D, Class E, Class F, and Class X Notes at AAA (sf), AA (low) (sf), A (sf), BBB (sf), BB (sf), B (high) (sf), and CCC (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.com.

Sensitivity Analysis: 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):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 13.5% and 72.5%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (low) (sf)

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in LGD, expected rating of B (low) (sf)
-- 25% increase in PD, expected rating of B (sf)
-- 50% increase in PD, expected rating below B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)

Class F Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD, expected rating below B (low) (sf)
-- 50% increase in PD, expected rating below B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)

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. 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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, 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.

-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- 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 Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- 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].