DBRS Morningstar Finalises its Provisional Credit Ratings on RevoCar 2023-2 UG (haftungsbeschränkt)

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional credit ratings on the following classes of notes issued by RevoCar 2023-2 UG (haftungsbeschränkt) (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at A (sf)
-- Class C Notes at BBB (sf)
-- Class D Notes at BB (sf)

DBRS Morningstar did not assign a credit rating to the Class E Notes (together with the Class A, Class B, Class C, and Class D Notes, the Notes) also issued in this transaction.

The final credit ratings are based on the information provided to DBRS Morningstar by the Issuer and its agents as of the date of this press release.

The final credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date. The final credit ratings on the Class B, Class C, and Class D Notes address the ultimate payment of interest when either is not the senior most class of notes outstanding and the timely payment of interest once they are the senior most class of notes outstanding and the ultimate repayment of principal by the legal final maturity date.

The transaction represents the issuance of notes backed by a portfolio of approximately EUR 500 million in receivables related to amortising loans and amortising loans with a final, mandatory balloon payment granted by the seller and the servicer, Bank11 für Privatkunden und Handel GmbH (Bank11).

CREDIT RATING RATIONALE
The final credit ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, the liquidity reserve, and excess spread;
-- Credit enhancement levels that are sufficient to support DBRS Morningstar's projected cumulative net loss assumptions under various stressed cash flow assumptions;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- Bank11’s capabilities with regard to originations, underwriting, and servicing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral, and the historical and projected performance of the originator’s portfolio;
-- DBRS Morningstar's sovereign rating on the Federal Republic of Germany, 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 is static and begins to amortise from the first interest payment date.

The transaction incorporates a mixed pro rata/potentially sequential amortisation mechanism during the normal redemption period. Upon the breach of predefined triggers, the repayment of the Class A to Class D Notes will switch to sequential from pro rata amortisation. The Class E Notes always amortise sequentially.

The transaction allocates payments on a combined interest and principal priority of payments basis and benefits from an amortising EUR 6.0 million liquidity reserve that Bank11 has funded at closing. The liquidity reserve can be applied to cover senior costs, payments under the interest rate swap agreement, and interest on the Class A Notes only.

All underlying contracts are fixed-rate loans whereas the Class A to Class E Notes represent floating-rate obligations. The interest rate risk is mitigated by an interest rate swap entered into with DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) that considers a notional amount equal to the aggregate outstanding note principal amount of all classes of Notes.

COUNTERPARTIES
Citibank Europe plc, German branch is the Issuer’s account bank for the transaction. DBRS Morningstar does not rate the German branch but publicly rates its ultimate parent, Citibank Europe plc, with a Long-Term Issuer Rating at AA (low) with a Stable trend. The transaction documents contain downgrade provisions relating to Citibank Europe plc that are consistent with DBRS Morningstar’s legal criteria where a replacement must be sought if the long-term rating on the account bank falls below a specific threshold (“A” by DBRS Morningstar). DBRS Morningstar considered this threshold and the current rating on Citibank Europe plc in its analysis. The Issuer’s accounts include the operating account, the liquidity reserve, the commingling reserve, the servicing fee reserve, and the swap collateral accounts.

DZ Bank is the swap counterparty for the transaction. DBRS Morningstar publicly rates DZ Bank with a Long-Term Issuer Rating at AA (low) with a Stable trend and a Long Term Critical Obligations Rating at AA with a Stable trend and concluded that it meets the minimum criteria to act in this capacity. The hedging documents contain downgrade provisions consistent with DBRS Morningstar’s criteria.

DBRS Morningstar’s credit ratings on the Class A, Class B, Class C, and Class D Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated classes of notes are their respective interest due and their principal amount.

DBRS Morningstar’s credit ratings do not address non-payment 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. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 euros unless otherwise noted.

The principal methodology applicable to the credit 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.

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

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/421590/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.

The sources of data and information used for these credit ratings include the originator (Bank 11), provided through the lead arranger UniCredit Bank AG:
-- Monthly static default data from March 2016 to July 2023, split into total, amortising, and balloon loans; new and used vehicles; and various loan-to-value bucket subsets;
-- Monthly static recovery data from March 2016 to July 2023, split into total, amortising, and balloon loans as well as new and used vehicles;
-- Monthly dynamic origination and delinquency data from March 2016 to July 2023;
-- Monthly static and dynamic prepayment data from March 2016 to July 2023; and
-- Portfolio stratification tables as at 30 September 2023 and the related theoretical amortisation schedule.

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

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.

These credit ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these finance instruments.

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

-- Expected default: 1.8%
-- Expected recovery rate: 45.4%
-- Loss given default (LGD): 70.5% for the AAA (sf) scenario; 65.2% for the A (sf) scenario; 62.0% for the BBB (sf) scenario; and 58.8% for the BB (sf) scenario

Scenario 1: A 25% increase in the expected PD
Scenario 2: A 50% increase in the expected PD
Scenario 3: A 25% increase in the expected LGD
Scenario 4: A 25% increase in the expected PD and 25% increase in the expected LGD
Scenario 5: A 50% increase in the expected PD and 25% increase in the expected LGD
Scenario 6: A 50% increase in the expected LGD
Scenario 7: A 25% increase in the expected PD and 50% increase in the expected LGD
Scenario 8: A 50% increase in the expected PD and 50% increase in the expected LGD

DBRS Morningstar concludes that the expected credit ratings under the eight stress scenarios are:
-- Class A Notes: AA (high) (sf), AA (sf), AA (sf), AA (sf), A (high) (sf), AA (sf), A (high) (sf), A (low) (sf)
-- Class B Notes: BBB (high) (sf), BBB (sf), BBB (high) (sf), BBB (sf), BB (high) (sf), BBB (sf), BB (high) (sf), BB (high) (sf)
-- Class C Notes: BBB (low) (sf), BB (high) (sf), BBB (low) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf)
-- Class D Notes: B (sf), B (low) (sf), B (high) (sf), B (low) (sf), below B (low) (sf), B (low) (sf), below B (low) (sf), below B (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://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: Ronja Dahmen, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Credit Rating Date: 11 September 2023

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 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 (6 October 2023), https://www.dbrsmorningstar.com/research/421599/rating-european-structured-finance-transactions-methodology.
-- 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.
-- 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.
-- Derivative Criteria for European Structured Finance Transactions (16 June 2023), https://www.dbrsmorningstar.com/research/415976/derivative-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.
-- 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].