Press Release

DBRS Morningstar Assigns Provisional Credit Ratings to SC Germany S.A., acting for and on behalf of its Compartment Leasing 2023-1

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November 06, 2023

DBRS Ratings GmbH (DBRS Morningstar) assigned provisional credit ratings to the following classes of notes (the Notes) to be issued by SC Germany S.A., acting for and on behalf of its Compartment Leasing 2023-1 (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (high) (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (low) (sf)

The provisional credit rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date. The provisional credit ratings on the Class B to Class F Notes address the ultimate payment of scheduled interest, the timely payment of interest when most senior, 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 selected from a provisional pool of approximately EUR 600 million of receivables related to auto leases granted by Santander Consumer Leasing GmbH (SCL; the originator, the seller), a wholly owned subsidiary of Santander Consumer Bank AG, to SMEs, corporates, and private individuals resident or incorporated in the Federal Republic of Germany. The underlying motor vehicles related to the auto leases consist of both new and used passenger vehicles, motorcycles, and light, medium, and heavy commercial vehicles. SCL also services the receivables.

DBRS Morningstar based its provisional credit ratings on a review of the following analytical considerations:

-- The transaction’s structure, including the form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Issuer’s financial obligations according to the terms under which the Notes are issued.
-- The credit quality of Santander Consumer Leasing GmbH’s portfolio, the characteristics of the collateral, its historical performance, and DBRS Morningstar’s projected behaviour under various stress scenarios.
-- Santander Consumer Leasing GmbH's capabilities with respect to originations, underwriting, servicing, and its position in the market and financial strength.
-- The operational risk review of Santander Consumer Leasing GmbH, which DBRS Morningstar deems to be an acceptable servicer, and its role in the transaction.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.
-- The consistency of the transaction’s hedging structure with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.
-- The sovereign rating on the Federal Republic of Germany, currently rated AAA with a Stable trend by DBRS Morningstar.

TRANSACTION STRUCTURE
The transaction allocates payments on separate interest and principal priorities of payments and will benefit from an amortising cash reserve that will be funded at closing with an amount equal to 1.25% of the Rated Notes’ outstanding balance. The cash reserve will be floored at 0.2% of the Class A to Class F Notes’ initial balance.

The transaction includes a 12 month revolving period. The repayment of the Class A, Class B, Class C, Class D, and Class E Notes will start on the first amortisation payment date in January 2025. The Notes amortise on a pro rata basis unless certain events, such as a breach of performance triggers or a replacement of the servicer, occur. Under these circumstances, the principal repayment on the Notes will become fully sequential, and the switch is not reversible. Interest and principal payments on the Notes will be made monthly. The Class F Notes will benefit from a turbo amortisation according the pre-enforcements interest priority of payments. Once the interest on the Notes are paid, the excess spread will be used to amortise the Class F Notes.

All underlying contracts are fixed rate while the Notes pay a floating rate. The Notes are indexed to one-month Euribor. Interest rate risk for the Rated Notes is mitigated through an interest rate swap that the Issuer entered into with an eligible counterparty.

COUNTERPARTIES
HSBC Continental Europe (HSBC CE) has been appointed to act as the account bank for the transaction. Based on DBRS Morningstar’s private rating on HSBC CE and the downgrade provisions outlined in the transaction documents, 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.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (DZ Bank) has been appointed as the swap counterparty for the transaction. The DBRS Morningstar credit rating on the chosen swap counterparty and the downgrade provisions referenced in the hedging documents are consistent with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar’s credit ratings on the Class A, Class B, Class C, Class D, Class E, and Class F Notes address 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 payments amounts and the related principal payments. For the Class F Notes only the financial obligations include the Class F turbo principal redemption amount.

DBRS Morningstar’s credit rating does 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.

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” (22 October 2023),
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. Because of 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/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
-- Quarterly static default data from Q4 2018 to Q2 2023 for SCF’s total auto lease pool, split between leases granted to private individuals and SMEs - Corporate to finance new and used vehicles.
-- Quarterly static recovery data from Q4 2018 to Q2 2023 for SCF’s total auto lease pool, split between leases granted to private individuals and SMEs - Corporate to finance new and used vehicles.
-- A lease-by-lease pool selected as at 31 August 2023
-- Summarised stratification tables for the selected pool as at 31 August 2023.
-- A theoretical amortisation 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 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 expected-to-be issued new financial instruments. These are the first DBRS Morningstar credit ratings on these financial instruments.

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 rate: 1.4%
-- Expected recovery rate: 60.0%
-- Loss given default (LGD): 8.1% for AAA (sf), 6.0% for AA (sf), 4.3% for A (high) (sf), 2.4% for BBB (high) (sf), 1.3% for BB (high) (sf), and 0.5% for B (low) (sf)

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

DBRS Morningstar concludes that the expected credit ratings under the eight stress scenarios would be:
-- Class A Notes: AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (low) (sf), AA (low) (sf), and A (high) (sf)
-- Class B Notes: A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (sf), A (low) (sf), A (low) (sf), and BBB (high) (sf)
-- Class C Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), and BBB (low) (sf)
-- Class D Notes: BBB (high) (sf), BBB (low) (sf), BBB (high) (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf), BB (high) (sf), and BB (high) (sf)
-- Class E Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (low) (sf), BB (low) (sf), and below B (high) (sf)
-- Class F Notes: B (sf), B (low) (sf), B (high) (sf), B (sf), B (low) (sf), B (low) (sf), B (low) (sf), and no qualitative credit rating for scenario 8.

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: María López, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 6 November 2023

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27 28046 Madrid, Spain
Tel. +34 (91) 903 6500

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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