DBRS Morningstar Upgrades and Confirms Credit Ratings on Two Fortuna Consumer Loan ABS Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on the notes issued by Fortuna Consumer Loan ABS 2021 Designated Activity Company (Fortuna 2021) and Fortuna Consumer Loan ABS 2022-1 Designated Activity Company (Fortuna 2022-1):

Fortuna 2021:
-- Class C Notes upgraded to AAA (sf) from AA (sf)
-- Class D Notes upgraded to AA (high) (sf) from A (sf)
-- Class E Notes upgraded to BBB (sf) from BB (high) (sf)

The credit rating on the Class C Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date in October 2030. The credit ratings on the Class D and Class E Notes address the ultimate payment of interest (timely when most senior) and the ultimate repayment of principal by the legal final maturity date.

Fortuna 2022-1:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (low) (sf)
-- Class C Notes upgraded to AA (low) (sf) from A (sf)
-- Class D Notes upgraded to A (sf) from BBB (sf)
-- Class E Notes upgraded to BB (high) (sf) from BB (sf)
-- Class F Notes upgraded to BB (low) (sf) from B (high) (sf)
-- Class X Notes confirmed at CCC (sf)

The credit 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 credit ratings on the Class C, Class D, Class E, 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 credit rating on the Class X Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

CREDIT RATING RATIONALE
The credit rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the September 2023 payment dates;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to rated notes to cover the expected losses at their respective credit rating levels.

The transactions are static securitisations backed by portfolios 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. Fortuna 2021 closed in October 2021 with an aggregate collateral portfolio of EUR 250.0 million; Fortuna 2022-1 closed in May 2022 with an aggregate collateral portfolio of EUR 225.0 million.

PORTFOLIO PERFORMANCE
Fortuna 2021:
As of the September 2023 payment date, loans that were in dunning levels 1 and 2 represented 6.3% and 1.6% of the outstanding collateral balance, respectively, while loans that were in dunning levels 3 and 4 represented 1.8%. Gross cumulative defaults amounted to 8.6% of the aggregate portfolio initial balance, 37.2% of which has been recovered to date.

Fortuna 2022-1:
As of the September 2023 payment date, loans that were in dunning levels 1 and 2 represented 5.2% and 1.8% of the outstanding collateral balance, respectively, while loans that were in dunning levels 3 and 4 represented 1.5%. Gross cumulative defaults amounted to 6.3% of the aggregate portfolio 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 pools of receivables. For Fortuna 2021, DBRS Morningstar updated its base-case PD assumption to 13.2%, while maintaining the LGD assumption at 72.5%. For Fortuna 2022-1, DBRS Morningstar updated its base-case PD assumption to 13.4%, while maintaining the LGD assumption at 72.5%.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the rated notes in the transactions. In both transactions, there is a rapid pace of portfolio amortisation, driven by very high borrower prepayments, which significantly increases credit enhancement.

Fortuna 2021:
As of the September 2023 payment date, credit enhancement to the Class C, Class D, and Class E Notes was 67.0%, 41.5%, and 20.2%, respectively, up from 33.7%, 21.1%, and 8.5%, as of the previous annual review 12 months ago.

As of the September 2023 payment date, the unrated junior-most Class F Notes recorded an uncleared principal deficiency ledger (PDL) debit balance of EUR 3.52 million, as the absolute level of excess spread in the transaction is insufficient to offset the monthly defaults on the portfolio as a result of the high prepayments, which greatly reduced the portfolio’s balance.

Fortuna 2022-1:
As of the September 2023 payment date, credit enhancement to the Class A, Class B, Class C, Class D, Class E, and Class F Notes was 78.2%, 49.2%, 31.3%, 21.1%, 11.7%, and 8.7%, respectively, up from 47.0%, 30.0%, 19.5%, 13.5%, 8.0%, and 6.2% at the time of the DBRS Morningstar initial credit ratings. 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 September 2023 payment date, the unrated junior-most Class G Notes recorded an uncleared PDL debit balance of EUR 2.17 million, as the absolute level of excess spread in the transaction is insufficient to offset the monthly defaults on the portfolio as a result of the high prepayments, which greatly reduced the portfolio’s 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, resulting in a significant increase in credit enhancement levels.

The transactions benefit from liquidity support provided by an amortising cash reserve, available to cover senior expenses and interest payments on the rated notes. In Fortuna 2021, the reserve has a target balance equal to 0.5% of the outstanding collateral balance, subject to a floor of EUR 475,000. In Fortuna 2022-1, the reserve has a target balance equal to 0.7% of the outstanding collateral balance, subject to a floor of EUR 422,000. As of the September 2023 payment date, both reserves were at their target balance of EUR 475,000 for Fortuna 2021 and EUR 609,874 for Fortuna 2022-1.

Elavon Financial Services DAC acts as the account bank for the transactions. Based on DBRS Morningstar’s private credit rating on the account bank, the downgrade provisions outlined in the transactions’ documents, and structural mitigants inherent in the transactions’ structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the credit 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 transactions. 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.

DBRS Morningstar’s credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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 transactions’ structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “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 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 principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating actions.

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 these credit 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 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 credit ratings, DBRS Morningstar was supplied with 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 these credit ratings 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.

The last credit rating action on Fortuna 2021 took place on 30 September 2022, when DBRS Morningstar confirmed its credit rating on the Class A Notes at AAA (sf) and upgraded its credit ratings on the Class B, Class C, Class D, Class E, and X Notes to AA (high) (sf), AA (sf), A (sf), BB (high) (sf), and BB (sf), respectively, from AA (low) (sf), A (low) (sf), BBB (sf), B (high) (sf), and B (sf).

The last credit rating action on Fortuna 2022-1 took place on 26 May 2023, when DBRS Morningstar confirmed its credit 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.

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 transactions’ parameters on the credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

-- DBRS Morningstar expected a lifetime base-case PD and LGD for the pools 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.
-- For Fortuna 2021, the base-case PD and LGD of the current pool of loans for the issuer are 13.2% and 72.5%, respectively.
-- For Fortuna 2022-1, the base case PD and LGD of the current pool of loans for the issuer are 13.4% and 72.5%, respectively.
-- The risk sensitivity overview below illustrates the credit 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 credit rating of the Fortuna 2021 Class C Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating on the Class C Notes would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the credit rating on the Class C Notes would be expected to fall to AA (sf).

Fortuna 2021:
Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

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

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

Fortuna 2022-1:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

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

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

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

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

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

These credit 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 Credit Rating Date: 15 September 2021 (Fortuna 2021); 5 May 2022 (Fortuna 2022-1)

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 credit rating methodologies used in the analysis of these transactions 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.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions.
-- 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.
-- 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.
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://www.dbrsmorningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions.
-- 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].