Morningstar DBRS Finalised Provisional Credit Ratings on BL Consumer Issuance Platform II S.à r.l., acting in respect of its Compartment BL Consumer Credit 2024

DBRS Ratings GmbH (Morningstar DBRS) finalised its provisional credit ratings on the following classes of notes issued by BL Consumer Issuance Platform II S.à r.l., acting in respect of its Compartment BL Consumer Credit 2024 (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)
-- Class F Notes at B (high) (sf)
-- Class X1 Notes at CCC (sf)
-- Class X2 Notes at CCC (sf)

Morningstar DBRS also assigned a credit rating of CCC (sf) to the Class G Notes (together with the above Notes, the Notes).

The credit ratings of 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. The credit ratings of the Class C, Class D, Class E, Class F and Class G Notes address the ultimate payment of scheduled interest while subordinated, then timely payment of scheduled interest as the most-senior class of notes outstanding, and the ultimate repayment of principal by the legal final maturity date. The credit ratings of Class X1 and Class X2 Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

The transaction is a securitisation of revolving loans with some fixed-rate instalment loans granted to individual residents in Belgium and Luxembourg and serviced by Buy Way Personal Finance (Buy Way).

CREDIT RATING RATIONALE
Morningstar DBRS’ credit ratings are based on 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 and the diversification of the collateral portfolio, its historical performance and the projected performance under various stress scenarios.
--The operational risk review of Buy Way´s capabilities with regard to originations, underwriting, and servicing;
-- The transaction parties’ financial strength with regard to their respective roles.
-- The consistency of the transaction’s structure with Morningstar DBRS “Legal Criteria for European Structured Finance Transactions” and “Derivative Criteria for European Structured Finance Transactions” methodologies.
-- The Morningstar DBRS sovereign credit ratings of the Kingdom of Belgium at AA with a Stable trend and of the Grand Duchy of Luxembourg at AAA with a Stable trend.

TRANSACTION STRUCTURE
The transaction has a relatively long scheduled revolving period of 36 months with separate interest and principal waterfalls for the available distribution amount. During this period, additional receivables may be purchased by the Issuer, provided that the eligibility criteria and portfolio conditions set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers or servicer or seller termination.

The interest priority of payments incorporates a principal deficiency ledger (PDL) for each class of Notes (except for the Class X1 and Class X2 Notes) where available funds may be used to cure the class-specific PDLs sequentially. The remaining available funds in the interest waterfalls can be used to redeem the Class X1 Notes immediately after closing in 18 scheduled equal instalments or more until fully redemption or the end of the revolving period. The redemption of the Class X2 Notes will only commence after the full redemption of the Class X1 Notes. After the revolving period, the Notes will amortise sequentially with payments of the Class X1 and Class X2 Notes ranking senior to the amortisation of Class G Notes.

The transaction includes a reserve with a target amount of 1.3% of the outstanding balance of the Class A, Class B and Class C Notes that is available to cover any shortfalls in senior expenses, senior hedging payments (only applicable during the amortisation period if the Notes are not fully redeemed on the first optional redemption date ) and interest payments on the Class A, Class B and Class C Notes (subject to the most senior class status and/or the PDL condition). There is also a spread account (with zero balance at closing) to trap excess spread if it falls below 4%.

The transaction has an interest rate cap to mitigate the interest rate mismatch risk between the collateral and the floating-rate Notes. The cap arrangement has a fixed notional amount during the three-year scheduled revolving period followed by a pre-determined schedule during the amortisation period after the first optional redemption date and will terminate on the earlier of 25 February 2032 or if the Issuer fails to pay the monthly cap running premium during the amortisation period.

TRANSACTION COUNTERPARTIES
Citibank Europe plc, Luxembourg Branch, is the Issuer’s account bank. Morningstar DBRS has an issuer rating of AA (low) on Citibank Europe plc, which meets the criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with Morningstar DBRS’ criteria.

Citibank Europe plc is also the interest rate hedge counterparty for the transaction, which meets the criteria to act in such capacity. The transaction documents contain downgrade provisions largely consistent with Morningstar DBRS’ criteria.

PORTFOLIO ASSUMPTIONS
The monthly principal payment rates (MPPRs) for the revolving loan portfolio have been largely stable since 2016 and averaged 9.5% over the past 12 months. Morningstar DBRS also notes that the zeroing legislation applicable to Belgian revolving loans prescribes a minimum payment under which the due balance of a revolving loan must reach zero after up to 96 months. Based on the historical data, Morningstar DBRS revised the expected MPPR for the revolving loans to 8% from 6.5%.

The yield of the revolving loan portfolio has been heavily influenced by the Belgian usury rate, as Buy Way has historically set the Belgian revolving loan interest rate at the legal maximum for both new and existing accounts. Morningstar DBRS notes the portfolio yield reached 11.4% as of June 2023 after the Belgian usury rates increased by 2% and 1.5% in December 2022 and June 2023, respectively. There was a further usury rate increase of 1% in December 2023, which is not yet fully reflected in the reported portfolio yield. Based on the historical data and the recent successive usury rate increases, Morningstar DBRS revised the expected yield for the revolving loans to 12% from 11.6%.

The reported historical charge-off rates for the revolving credit portfolio were relatively stable until Q2 2021 when charge-off levels started to increase steadily due to higher costs of living and inflationary pressures. However, the charge-off rates started declining beginning January 2023 as a result of tighter underwriting criteria, reduced inflation and a large one-time automatic salary indexation applicable to most private firms in Belgium. Based on the historical data and recent underwriting trends, Morningstar DBRS maintained the expected charge-off rate for the revolving loans at 4.4%.

The instalment loans include personal loans and point-of-sale finance loans and could represent up to 30% of the securitised receivables. Considering this significant concentration limit, Morningstar DBRS derived static default assumptions separate from dynamic asset assumptions used for the revolving loans.

The overall default levels of instalment loans have been worsening year over year but an improvement is expected to occur as the online origination of personals loans, which currently account for most instalment loans, was ceased in June 2022 and Buy Way has tightened its granting policy since Q4 2022. Based on the historical performance and origination trends, Morningstar DBRS maintained the expected lifetime default for the instalment loans at 7%.

Beginning in 2018, most defaulted loans are sold through a forward flow agreement, which is the main source of recoveries. Morningstar DBRS revised the expected recovery rate to 40% from 25%, which is comparable with French consumer loan portfolios with similar prescriptive legislations for recovery processes.

Morningstar DBRS' credit ratings on the 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 Notes are the related Interest Amount and the Initial Principal Amount.

Morningstar DBRS’ credit ratings on the Notes also addresses the credit risk associated with the increased rate of interest applicable to the Notes if the Notes are not redeemed on the first optional redemption date as defined in and in accordance with the transaction documents.

Morningstar DBRS’ 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.

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: “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 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. Due to 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” methodology at: https://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include the following data provided by the arranger, Deutsche Bank AG:
-- Dynamic receivables balance, origination amount, payment rates, delinquencies, charge-off rates, and yield rates for the revolving loan product from March 2010 to December 2023;
-- Static default by balance and account for instalment loan product from January 2016 to December 2023;
-- Static recovery by balance and account for total portfolio, with a further breakdown between over-indebtedness and litigation from 2004 to 2023, and
-- An initial portfolio with associated stratification tables as at 29 February 2024.

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

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.

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

This is the first credit rating action since the Initial Credit Rating Date.

Information regarding Morningstar DBRS’ credit ratings, including definitions, policies, and methodologies, is available on 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 to the parameters used to determine the credit ratings:

For the revolving loans:
-- Expected Yield Rate of 12%
-- Expected MPPR of 8%
-- Expected Charge-Off Rate of 4.4%

Scenario 1: a 25% decrease in the Expected Yield Rate
Scenario 2: a 25% decrease in the Expected MPPR
Scenario 3: a 25% increase in the Expected Charge-Off Rate
Scenario 4: a 15% decrease in the Expected Yield Rate, 15% decrease in the Expected MPPR and 15% increase in the Expected Charge-Off Rate.

For the instalment loans:
-- Expected Default of 7%

Scenario 5: a 25% increase in the expected default.
Scenario 6: a 50% increase in the expected default.

For all loans:
-- Expected Recovery Rate of 40% (Loss Given Default of 60%)

Scenario 7: a 25% increase in the Loss Given Default.

Morningstar DBRS concludes that the expected credit ratings under the seven stress scenarios are:
--Class A Notes: AAA (sf), AAA (sf), AA (high) (sf), AA (high) (sf), AAA (sf), AA (high) (sf), AA (high) (sf)
--Class B Notes: A (high) (sf), A (high) (sf), A (high) (sf), A (sf), A (high) (sf), A (high) (sf), A (sf)
--Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf)
--Class D Notes: BB (high) (sf), BBB (low) (sf), BB (high) (sf), BB (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf)
--Class E Notes: B (high) (sf), BB (low) (sf), BB (low) (sf), B (high) (sf), BB (low) (sf), B (high) (sf), B (high) (sf)
--Class F Notes: below B (low) (sf), B (sf), below B (low) (sf), below B (low) (sf), B (sf), B (low) (sf), B (low) (sf)

No sensitivity was conducted on the Class X1, Class X2 or Class G 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: Kevin Chiang, Senior Vice President
Credit Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Credit Rating Date (Class A, Class B, Class C, Class D, Class E, Class F, Class X1, Class X2 Notes): 14 February 2024
Initial Credit Rating Date (Class G Notes): 25 March 2024

DBRS Ratings GmbH
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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://dbrs.morningstar.com/about/methodologies.

-- 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.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730.
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024), https://dbrs.morningstar.com/research/429054.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602.
-- 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 dbrs.morningstar.com or contact us at [email protected].