Morningstar DBRS Confirms Credit Rating on Auto lease-now 2023-1 AG

DBRS Ratings Limited (Morningstar DBRS) confirmed its AAA (sf) credit rating on the Class A Notes issued by Auto lease-now 2023-1 AG (the Issuer).

The credit rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

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 April 2024 payment date.
-- Probability of default (PD), loss given default (LGD), residual value (RV) haircut, and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) credit rating level;
-- No revolving termination events have occurred.

The transaction is a securitisation of vehicle finance lease contracts granted by BANK-now AG, a wholly owned subsidiary of Credit Suisse AG, to lessees resident or incorporated in the Swiss Confederation. The securitised receivables include monthly lease instalments and their related residual values. The underlying vehicles relate to both new and used passenger and light-commercial vehicles and motorcycles. BANK-now also services the receivables.

The transaction includes a 33-month revolving period, during which time the Issuer may purchase additional receivables subject to eligibility criteria and portfolio concentration limits. The revolving period is scheduled to end in February 2026.

PORTFOLIO PERFORMANCE
As of 31 March 2024, loans two to three months in arrears represented 0.1% of the outstanding portfolio balance. Gross cumulative defaults as a percentage of the aggregate original balance of the purchased receivables were 0.3%, and cumulative recoveries as a percentage of the aggregated default balance were 11.5%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the pool of receivables and has updated its base-case assumptions at the B (low) (sf) credit rating level as follows:
-- Expected default rate: 2.2%
-- Expected recovery rate: 63.6%
-- PD at the AAA (sf) credit rating level: 10.9%
-- LGD at the AAA (sf) credit rating level: 61.8%
-- RV haircut at the AAA (sf) credit rating level: 30.5%

CREDIT ENHANCEMENT
Credit enhancement consists of subordination of the junior notes. As of the April 2024 payment date, credit enhancement to the Class A Notes was 19.2%, stable since the Morningstar DBRS initial credit rating due to the transaction revolving period which is scheduled to end in February 2026.

The transaction benefits from a non-amortising cash reserve funded to its target level of CHF 3.7 million, equal to 1.4% of the initial outstanding portfolio balance. The cash reserve provides liquidity support and is available to cover senior expenses and interest on the Class A Notes.

Credit Suisse (Schweiz) AG acts as the account bank for the transaction. Based on Morningstar DBRS' private credit rating on Credit Suisse (Schweiz) AG, 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 notes if the 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, 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 (23 January 2024) at https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

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

The principal methodology applicable to the credit ratings is the "Master European Structured Finance Surveillance Methodology" (7 March 2024): https://dbrs.morningstar.com/research/429051/master-european-structured-finance-surveillance-methodology.

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 the 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 Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/421590/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this credit rating include investor reports provided by Amicorp Switzerland AG.

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

At the time of the initial credit rating, 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 23 May 2023, when Morningstar DBRS finalised its provisional credit rating on the Class A Notes at AAA (sf).

The lead analyst responsibilities for this transaction have been transferred to Clare Wootton.

Information regarding Morningstar DBRS credit ratings, including definitions, policies and methodologies is available at 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 (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.
-- The base-case PD, LGD, and RV haircut of the current pool of loans for the Issuer at the B (low) (sf) credit rating level are as follows:
-- Expected default rate of 2.2%
-- Expected recovery rate of 63.6%; and
-- RV haircut: 1.5%

The risk sensitivity overview below illustrates the credit ratings expected if the PD, LGD, and RV haircut increase by a certain percentage over the base-case assumption.

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

This credit rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Clare Wootton, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 5 May 2023

DBRS Ratings Limited
1 Oliver's Yard 55-71 City Road, 2nd Floor
London EC1Y 1HQ United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

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 (7 March 2024),
https://dbrs.morningstar.com/research/429051
-- 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 (7 March 2024),
https://dbrs.morningstar.com/research/429054/
-- 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 info-DBRS@morningstar.com.