Press Release

DBRS Morningstar Finalises Provisional Credit Ratings on abc SME Lease Germany S.A., acting in respect of its Compartment 9

Consumer/Commercial Leases

October 20, 2023

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional credit ratings on the following classes of notes issued by abc SME Lease Germany S.A., acting in respect of its Compartment 9 (the Issuer):

-- Class A Fixed Rate Amortising Notes (the Class A Notes) at AAA (sf)
-- Class B Fixed Rate Amortising Notes (the Class B Notes) at AA (high) (sf)

The credit ratings on the Class A and Class B Notes (together, the Notes) address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in October 2032. DBRS Morningstar did not assign a provisional credit rating to the Class C Notes also issued in this transaction.

The transaction represents the issuance of debt backed by a static portfolio of approximately EUR 400 million of fixed-rate receivables related to leases granted by the originators to small businesses and professional clients residing in Germany.

CREDIT RATING RATIONALE
The credit ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- Credit enhancement levels that are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents.
-- abcbank GmbH’s (abcbank; the seller and the master servicer), the originators’ (abcfinance GmbH, milon financial services GmbH, Hako Finance GmbH, and Schneidereit Finance GmbH), and the servicers’ capabilities with respect to originations, underwriting, servicing, and financial strength.
-- DBRS Morningstar’s operational risk review on abcbank, which it deemed to be an acceptable servicer.
-- The appointment of akf bank GmbH & Co KG as the transaction’s backup servicer and its capabilities with respect to servicing.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the seller’s portfolio.
-- DBRS Morningstar’s sovereign rating on the Federal Republic of Germany at AAA with a Stable trend.
-- 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 allocates payments on separate interest and (fully sequential) principal payment priorities and benefits from a EUR 8.1 million amortising liquidity reserve, funded at closing through a subordinated loan. The liquidity reserve can be used to cover senior costs and interest on the Class A and Class B Notes and, to the extent that excess can be released, it can be used to offset defaulted receivables through a principal deficiency ledger mechanism, thus providing soft credit enhancement. The transaction documentation foresees a commingling risk reserve funded at closing and drawn in a commingling risk event in the amount of EUR 1.4 million.

The transaction is not exposed to interest rate risk since the Notes pay a fixed coupon and the portfolio, by way of using a discount rate to value receivables, earns a fixed spread. The portfolio will be serviced by abcbank.

COUNTERPARTIES
The Bank of New York Mellon - Frankfurt Branch acts as the account bank for the transaction. Based on DBRS Morningstar’s AA (high) credit rating of its parent company, The Bank of New York Mellon, as well as the downgrade provisions and the structural mitigants inherent in the transaction structure, DBRS Morningstar considers the structure to be consistent with the credit ratings assigned to the Class A and Class B Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the Class A Notes and the Class B 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 the Class A Notes Interest, the Class A Notes Principal, the Class B Notes Interest, and the Class B Notes Principal.

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, considering the default rates at which the rated notes did not return all specified cash flows.

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.

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 originators, provided through the joint lead arrangers, abcbank and Landesbank Baden-Württemberg.

DBRS Morningstar received quarterly static default data from January 2012 to May 2023, quarterly static recovery data from January 2012 to May 2023, monthly dynamic delinquency data from January 2012 to May 2023, and monthly static prepayment data from December 2018 to May 2023. DBRS Morningstar also received a set of stratification tables for the portfolio as of 30 September 2023 and the related contractual amortisation profile.

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 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 credit ratings on these financial 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):

-- DBRS Morningstar expected a lifetime base case probability of default (PD) and loss given default (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 expected defaults and LGD of the current pool of loans for the Issuer are 4.02% and 50.34%, respectively.
-- Expected PD used: 21.82% for a AAA (sf) scenario, 18.36% for a AA (high) (sf) scenario, a 25% and 50% increase on the applicable PD.
-- Expected LGD used: 64.93% for a AAA (sf) scenario, 62.25% for a AA (high) (sf) scenario, a 25% and 50% increase on the applicable LGD.

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

DBRS Morningstar concludes that the expected credit ratings under the eight hypothetical scenarios are:
-- Class A Notes: AA (sf), A (high) (sf), AA (high) (sf), A (high) (sf), A (low) (sf), A (high) (sf), A (low) (sf), and BBB (high) (sf).
-- Class B Notes: AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), BBB (high) (sf), A (high) (sf), BBB (high) (sf), and BBB (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.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Stephan Rompf, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 21 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.

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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