Morningstar DBRS Assigns Provisional Credit Ratings to SC Germany S.A., acting on behalf and for the account of its Compartment Consumer 2024-1

DBRS Ratings GmbH (Morningstar DBRS) assigned provisional credit ratings to the notes (the Notes) to be issued by SC Germany S.A., acting on behalf and for the account of its Compartment Consumer 2024-1 (the Issuer) as follows:

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

The credit rating of the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The credit ratings of the Class B Notes, the Class C Notes, the Class D Notes, and the Class E Notes address the ultimate payment of interest, the timely payment of interest when most senior, and the ultimate repayment of principal by the legal final maturity date. The credit rating of the Class F Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

The Notes are backed by a portfolio of fixed-rate unsecured amortising personal loans granted without a specific purpose to private individuals domiciled in Germany and serviced by Santander Consumer Bank AG (SCB).

CREDIT RATING RATIONALE
The credit ratings are based on the following analytical considerations:
-- The transaction's structure, including 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 the collateral, historical and projected performance of SCB's portfolio, and Morningstar DBRS' projected performance under various stress scenarios;
-- An operational risk review of SCB's capabilities with regard to its originations, underwriting, servicing, and financial strength;
-- The transaction parties' financial strength with regard to their respective roles;
-- Morningstar DBRS' sovereign credit rating of the Federal Republic of Germany, currently at AAA with a Stable trend; and
-- The expected 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.

TRANSACTION STRUCTURE
The transaction includes a seven-month scheduled revolving period, during which the Issuer is able to purchase additional loan receivables on each monthly payment date, as long as they satisfy the eligibility criteria and the transaction concentration limits.

The transaction allocates payments according to separate interest and principal priorities of payments and benefits from an amortising liquidity reserve equal to 1.5% of the outstanding Notes balance, subject to a floor of 0.5% of the initial Notes amount. The liquidity reserve is part of available interest funds to cover shortfalls in senior expenses, senior swap payments, interest on the Class A Notes, and if not deferred, interest on other classes of the Notes. The liquidity reserve would be replenished in the interest waterfalls.

The repayment of the Notes after the end of the revolving period will be sequential until the Class A Notes credit enhancement reaches 23% (a pro rata payment trigger event), followed by a pro rata repayment between the Notes (excluding the Class F Notes) until a sequential payment trigger is breached. Upon the occurrence of a sequential payment trigger event, the repayment of the Notes will switch to be non-reversible sequential. On the other hand, the Class F Notes will begin amortising immediately after the transaction closing in the interest priority of payments in 24 equal instalments.

The Notes pay floating interest rates based on one-month Euribor, whereas the portfolio comprises fixed-rate loans. The interest rate mismatch risk between the Notes and the portfolio is hedged through an interest rate swap agreement with an eligible counterparty.

At inception, the weighted-average portfolio yield is expected to be at least 8.3%, which is one of the portfolio concentration limits during the revolving period.

TRANSACTION COUNTERPARTIES
Citibank Europe plc (German Branch) is 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 other mitigating factors in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the Notes.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) is the swap counterparty for the transaction. Morningstar DBRS has a Long-Term Issuer Rating of AA (low) on DZ Bank, which meets Morningstar DBRS' criteria with respect to its role. The transaction also has downgrade provisions consistent with Morningstar DBRS' criteria.

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 class of the Notes are the related Interest Amounts and Principal.

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: 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" at: https://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include the historical data provided by the originator through the arranger as below:
-- Quarterly static cumulative default data from Q2 2006 to Q4 2023;
-- Quarterly static cumulative recovery data from Q2 2006 to Q4 2023;
-- Monthly dynamic delinquencies from November 2014 to December 2023; and
-- Monthly dynamic prepayments from January 2014 to December 2023.

Morningstar DBRS also received a set of stratification tables and loan-by-loan data in relation to the provisional collateral pool as of 29 February 2024 and its related contractual amortisation schedule.

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 affect 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of a final credit rating on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalise the credit rating.

These credit ratings concern expected-to-be issued new financial instruments. These are the first Morningstar DBRS' credit ratings on these financial instruments.

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 rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating:
-- Expected default: 4.75%
-- Expected recovery: 16% or loss given default (LGD) 84%

Scenario 1: A 25% increase in the expected default
Scenario 2: A 50% increase in the expected default
Scenario 3: A 25% increase in the expected LGD
Scenario 4: A 25% increase in the expected default and a 25% increase in the expected LGD
Scenario 5: A 50% increase in the expected default and a 25% increase in the expected LGD

Morningstar DBRS concludes that the expected credit ratings under the five stress scenarios would be:
-- Class A Notes: AA (sf), AA (sf), AA (high) (sf), AA (sf), A (high) (sf)
-- Class B Notes: A (high) (sf), A (sf), AA (low) (sf), A (sf), A (low) (sf)
-- Class C Notes: BBB (high) (sf), BBB (sf), A (sf), BBB (high) (sf), BBB (sf)
-- Class D Notes: BBB (low) (sf), BB (high) (sf), BBB (sf), BB (high) (sf), BB (high) (sf)
-- Class E Notes: BB (high) (sf), BB (sf), BB (high) (sf), BB (sf), B (sf)
-- Class F Notes: BB (high) (sf), BB (low) (sf), BB (high) (sf), BB (sf), B (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 Limited for use in the United Kingdom.

Lead Analyst: Kevin Chiang, Senior Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 15 April 2024

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://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].