Morningstar DBRS Confirms Credit Ratings on First Swiss Mobility 2023-1 AG

DBRS Ratings Limited (Morningstar DBRS) confirmed its credit ratings on the notes issued by First Swiss Mobility 2023-1 AG (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (low) (sf)

Additionally, DBRS Morningstar removed the credit ratings on the Class B and Class C Notes from Under Review with Positive Implications (UR-Pos.), where they were placed on 24 January 2024 following the release of Morningstar DBRS’ updated “Rating European Consumer and Commercial Asset-Backed Securitisations” methodology. For more information, please see: https://dbrs.morningstar.com/research/427064.

The credit ratings on the Class A, Class B, and Class C Notes (together, the Notes) addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in May 2032.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the January 2024 payment date;
-- Probability of default (PD), loss given default (LGD), residual value (RV) haircut, and expected loss assumptions on the remaining receivables;
-- The updated “Rating European Consumer and Commercial Asset-Backed Securitisations” methodology;
-- Current available credit enhancement to the notes to cover the expected losses at their respective credit rating levels; and
-- No revolving termination events.

The transaction is a securitisation collateralised by auto leases granted by MultiLease AG, a wholly owned subsidiary of Emil Frey Holding AG. The underlying motor vehicles related to the auto leases consist of both new and used passenger cars, light-commercial vehicles, and motorcycles.

PORTFOLIO PERFORMANCE
As of the January 2024 payment date, loans two to three months in arrears represented 0.03% of the outstanding portfolio balance and there are no loans more than three months in arrears. Gross cumulative defaults, as a percentage of the original portfolio and cumulative transferred receivables, were 0.1%, with cumulative recoveries of 67.0%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted an analysis of the current pool of receivables and updated its expected PD, LGD, and RV haircut assumptions to the following:
-- Expected PD of 1.0%;
-- Expected LGD of 22.2%; and
-- RV haircut of 3.10%.

CREDIT ENHANCEMENT
Credit enhancement (CE) to the Notes consists of the subordination of the respective junior notes. As the transaction is still in its revolving period, the CEs have remained unchanged since closing. As of the January 2024 payment date, the CE on the notes stood as follows:

-- CE to the Class A Notes at 23.1%
-- CE to the Class B Notes at 14.7%
-- CE to the Class C Notes at 9.5%

The transaction includes a nonamortising cash reserve equal to 1.4% of the initial collateral balance. The cash reserve provides liquidity support to the Notes, available to pay senior transaction fees and interest payments on the Notes.

Zürcher Kantonalbank (ZKB) acts as the account bank for the transaction. Based on Morningstar DBRS’ private credit rating on ZKB, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the Class A Notes, as described in Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” methodology.

Morningstar DBRS’ credit rating on the notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS’ credit rating on the notes also addresses the credit risk associated with the increased rate of interest 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 documents.

Morningstar DBRS’ credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in Swiss Francs unless otherwise noted.

The principal methodologies applicable to the credit ratings are the Master European Structured Finance Surveillance Methodology (11 December 2023), https://dbrs.morningstar.com/research/425148, and Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024), https://dbrs.morningstar.com/research/426219.

Other methodologies referenced in this transaction are listed at the end of this press release.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include investor reports provided by Intertrust Financial Services B.V.

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

At the time of the initial credit ratings, Morningstar DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

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

Morningstar DBRS 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 this transaction took place on 24 January 2024, when Morningstar DBRS placed its credit ratings on the Class B and Class C Notes UR-Pos. following the release of the updated methodology.

The lead analyst responsibilities for this transaction have been transferred to Petter Wettestad.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available at https://dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

-- Morningstar DBRS expected a lifetime base case PD, LGD, and RV haircut 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.

-- Expected PD of 1.0%;
-- Expected LGD of 22.2%; and
-- RV haircut of 3.10%.

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

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

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

For further information on Morningstar DBRS 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 Morningstar DBRS 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 GmbH for use in the European Union.

Lead Analyst: Petter Wettestad, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 January 2023

DBRS Ratings Limited
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730
-- Master European Structured Finance Surveillance Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425148
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023),
https://dbrs.morningstar.com/research/420573
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].