DBRS Morningstar Finalises Provisional Credit Rating on Auto lease-now 2023-2 AG

DBRS Ratings Limited (DBRS Morningstar) finalised its provisional credit rating of AAA (sf) on the Class A Notes (the Notes) issued by Auto lease-now 2023-2 AG (the Issuer).

The credit rating assigned to the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date.

CREDIT RATING RATIONALE
The transaction represents the issuance of Notes backed by a portfolio of approximately CHF 169 million of receivables related to vehicle finance lease contracts granted by BANK-now AG (BANK-now; the Originator or the Seller), a wholly owned subsidiary of Credit Suisse (Schweiz) AG, to lessees who reside or are incorporated in the Swiss Confederation. The underlying motor vehicles related to the auto finance lease contracts consist of both new and used passenger and light-commercial vehicles and motorcycles. BANK-now also services the receivables.

The rating is based on DBRS Morningstar’s 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;
-- BANK-now’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 DBRS Morningstar 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.

The transaction includes a 41-month revolving period during which the Issuer shall purchase additional receivables. During this period, the transaction will be subject to receivables eligibility criteria and concentration limits designed to prevent a deterioration in 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 and Subordinated Loan amortise sequentially.

The transaction also features a nonamortising cash reserve account that is available to the structure and equals to 1.4% of the aggregate outstanding balance of the purchased lease assets as of the initial cut-off date. The cash reserve provides liquidity support to the Notes and is 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
Credit Suisse (Schweiz) AG has been appointed as the Issuer’s account bank for the transaction. DBRS Morningstar privately rates Credit Suisse (Schweiz) AG, and has concluded that it meets DBRS Morningstar’s minimum criteria to act in such capacity. The transaction contains downgrade provisions relating to the account bank that are consistent with DBRS Morningstar’s legal criteria. The Issuer’s accounts include a collection account, a payment account, a cash reserve account, a note interest account, a deposit account, and a securities account.

DBRS Morningstar’s credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. For the Notes, the associated financial obligations are the related interest and related principal payments.

DBRS Morningstar’s credit rating on the Class A Notes also addresses the credit risk associated with the step-up coupon applicable to the Class A Notes if the Class A Notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction document(s).

DBRS Morningstar’s credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/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 credit rating 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.

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 credit 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.

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.

The sources of data and information used for this credit rating include BANK-now and its agent. DBRS Morningstar received the following data and information:
-- Static cumulative monthly, quarterly, and annual default data from January 2015 to June 2023, split into commercial new and used, and private new and used subsets.
-- Static cumulative monthly, quarterly, and annual recovery data from January 2015 to June 2023, split into commercial new and used, and private new and used subsets.
-- Static cumulative annual default and recovery data for the Porsche portfolio and the total portfolio from 2015 to 2023.
-- Static cumulative monthly, quarterly, and annual write-off data from January 2015 to June 2023, split into commercial new and used, and private new and used subsets.
-- Dynamic monthly delinquency data from January 2015 to June 2023, split into total portfolio, private and commercial customers' new and used subsets.
-- A lease-level file containing all of BANK-now's leases.
-- A lease-level pool cut and its related stratification tables as at 31 August 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 credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

This credit rating concerns a newly issued financial instrument. This is the first DBRS Morningstar credit rating on this financial instrument.

This is the first credit rating action since the Initial Rating Date.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- Expected default: 2.2%.
-- Expected recovery rate: 63.0%.
-- Loss given default (LGD): 62.2% for the AAA (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 credit ratings under the eight stress scenarios are:
-- Class A Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), A (high) (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://registers.esma.europa.eu/cerep-publication. 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.

This credit rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Miklos Halasz, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 5 September 2023

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

The credit 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.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Rating European Structured Finance Transactions Methodology (15 July 2022),
https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023), https://www.dbrsmorningstar.com/research/420573/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023),
https://www.dbrsmorningstar.com/research/416784/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].