Morningstar DBRS Confirms Credit Ratings on Fortuna Consumer Loan ABS 2023-1 Designated Activity Company and Discontinues Credit Rating on Class F Notes

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the notes issued by Fortuna Consumer Loan ABS 2023-1 Designated Activity Company (the Issuer) as follows:

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

Morningstar DBRS also discontinued its CCC (sf) credit rating on the Class F Notes at the Issuer’s request.

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 September 2032. The credit ratings on the Class C, 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.

CREDIT RATING RATIONALE
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the February 2024 payment date;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions for the aggregate collateral pool; and
-- Current available credit enhancement to rated notes to cover the expected losses at their respective credit rating levels.

The transaction is a securitisation backed by a portfolio of fixed-rate, unsecured, and amortising 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. The transaction closed in March 2023 with an initial collateral portfolio of EUR 350.0 million. The transaction includes a revolving period of 12 months, scheduled to end on the March 2024 payment date.

PORTFOLIO PERFORMANCE
As of the February 2024 payment date, loans that were in dunning levels 1 and 2 represented 3.9% and 1.1% of the outstanding collateral balance, respectively, while loans that were in dunning levels 3 and 4 represented 1.2%. Gross cumulative defaults amounted to 3.8% of the aggregate portfolio initial balance, 33.0% of which has been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its base case PD assumption to 12.8% and maintained its LGD assumption at 72.5%, based on its loan-by-loan analysis on the remaining pool of receivables.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the rated notes.

As of the February 2024 payment date, credit enhancement to the Class A, Class B, Class C, Class D, Class E, and Class F Notes was 44.0%, 30.0%, 20.0%, 13.0%, 8.0%, and 5.0%, respectively, unchanged since Morningstar DBRS’ initial credit ratings due to the revolving period.

The transaction benefits from liquidity support provided by an amortising cash reserve, available only if the interest and principal collections are not sufficient to cover the shortfalls in senior expenses, interests on the Class A Notes and, if not deferred, the interest payments on other classes of rated notes. After the end of the revolving period, it amortises subject to a target required amount, which is the higher of 1.7% of the outstanding balance of the rated notes and the floor level of EUR 2.49 million. As of the February 2024 payment date, the reserve was at its target balance of EUR 5.65 million.

Citibank Europe plc acts as the account bank for the transaction. Based on Morningstar DBRS’ Long-Term Issuer Rating of AA (low) on Citibank Europe plc, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structures, Morningstar DBRS 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 Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA (BNP) acts as the hedging counterparty in the transaction. Morningstar DBRS' public Long Term Critical Obligations Rating of AA (high) on BNP is consistent with the first rating threshold as described in Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology.

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

Morningstar DBRS’ credit ratings do not address nonpayment 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 euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “Master European Structured Finance Surveillance Methodology (11 December 2023), https://dbrs.morningstar.com/research/425148.

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

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

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit 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 monthly transaction reports provided by U.S. Bank Global Corporate Trust Limited, servicer reports and additional information provided by auxmoney, and loan-level data provided by European DataWarehouse GmbH.

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 credit 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 2 March 2023, when Morningstar DBRS finalised its provisional credit ratings on the Class A, Class B, Class C, Class D, Class E, and Class F Notes at AAA (sf), AA (sf), A (high) (sf), BBB (high) (sf), BB (high) (sf), and CCC (sf), respectively, and discontinued its provisional credit rating on the Class X Notes.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 and 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 PD and LGD of the current pool of loans for the issuer are 12.8% and 72.5%, respectively.

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

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

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

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

Morningstar DBRS did not conduct sensitivity analysis for the Class F Notes.

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 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: 6 February 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 these transactions can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (11 December 2023), https://dbrsmorningstar.com/research/425148
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602
-- 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
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030

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 https://dbrs.morningstar.com/ or contact us at [email protected].