Morningstar DBRS Confirms Credit Rating on Alstertal Consumer Funding 2021-1 DAC

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AA (high) (sf) credit rating on the Class A notes (the Notes) issued by Alstertal Consumer Funding 2021-1 DAC (the Issuer).

The credit rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in July 2034.

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 May 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- No revolving period termination event has occurred; and
-- Current available credit enhancement to the Notes to cover the expected losses at the AA (high) (sf) credit rating level.

The transaction is a securitisation of unsecured consumer loans granted to private individuals domiciled in Germany and serviced by Barclays Bank Ireland plc, Hamburg branch (Barclays Germany). The transaction closed in October 2021 with an initial portfolio balance of EUR 1.16 billion and a 37-month revolving period scheduled to end in November 2024.

In August 2022, in connection with revised historical default performance data provisioned by Barclays Germany and the resulting increased default assumption, the unrated junior Class Z VFN Notes were tapped in an amount of EUR 170.2 million, resulting in an increase of credit enhancement to the Class A notes to 23.0% from 12.0% at the initial rating analysis.

In May 2023, the transaction was amended to clarify the default definition in the transaction documents, increase the cumulative loss ratio trigger, change several concentration limits, and move the monthly payment date to the 22nd of each month. For more information, please see the Morningstar DBRS press release dated 23 May 2023 relating to the amendment of the transaction.

PORTFOLIO PERFORMANCE
As of the May 2024 payment date, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.9% and 0.3% of the outstanding portfolio balance, respectively. Gross cumulative defaults, defined as loans 90 or more days in arrears, amounted to 3.1% of the aggregate original portfolio balance, with cumulative recoveries of 20.8% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and maintained its base case PD and LGD assumptions at 6.5% and 80.0%, respectively.

CREDIT ENHANCEMENT
The subordination of the Class Z VFN Notes provides credit enhancement to the Class A notes. As of the May 2024 payment date, credit enhancement to the Class A notes remained at 23.0%, unchanged since the tap issuance of the Class Z VFN Notes in August 2022, due to the presence of the revolving period.

The transaction benefits from an external liquidity facility extended by Barclays Bank plc (Barclays) with a maximum commitment amount equal to 0.5% of the outstanding Class A notes balance, currently equal to EUR 5.24 million, with a floor of EUR 500,000.

The liquidity facility can be used to cover shortfalls of senior expenses, interest payments on the Class A notes, and liquidity facility fees and interest if the interest collections are not sufficient.

Elavon Financial Services DAC (Elavon) acts as the account bank for the transaction. Based on Morningstar DBRS’ private rating on Elavon, 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 ratings assigned to the Notes, as described in Morningstar DBRS’ “Legal 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 term 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 (23 January 2024) 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 the “Master European Structured Finance Surveillance Methodology” (7 March 2024), https://dbrs.morningstar.com/research/429051.

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 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 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 investor reports provided by U.S. Bank Global Corporate Trust, servicer reports provided by Barclays Germany, and loan-level data provided by the 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 rating, 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 this credit rating 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 upgraded its credit rating on the Class A notes to AA (high) (sf) from AA (sf) following an amendment of the transaction.

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 (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 6.5% and 80.0%, respectively.

Class A Notes Risk Sensitivity: -- 25% increase in LGD, expected credit rating of AA (sf) -- 50% increase in LGD, expected credit rating of AA (sf) -- 25% increase in PD, expected credit rating of AA (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 (sf) -- 50% increase in PD and 50% increase in LGD, expected credit rating of A (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 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: 13 October 2021

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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.

-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024), https://dbrs.morningstar.com/research/426219
-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730
-- 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
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602

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]