Morningstar DBRS Confirms Credit Rating on Loan Invest NV/SA. Compartment SME Loan Invest 2020

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AA (high) (sf) credit rating on the Notes issued by Loan Invest NV/SA. Compartment SME Loan Invest 2020 (the Issuer).

The credit rating addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in July 2054.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- The portfolio performance, in terms of the level of delinquencies and defaults, as of the May 2024 payment date;
-- The one-year base case probability of default (PD), and default and recovery rates on the outstanding receivables; and
-- The current available credit enhancement to the Notes to cover the expected losses assumed at the AA (high) (sf) credit rating level;

The transaction is a static cash flow securitisation of a portfolio of secured and unsecured loans originated and serviced by KBC Bank NV (KBC) to Belgian small and medium-size enterprises (SMEs).

PORTFOLIO PERFORMANCE
As of the May 2024 payment date, cumulative defaulted loans represented 0.38% of the initial portfolio balance, up from 0.28% at previous annual review in July 2023, and delinquent loans increased to 0.06% from 0.01% of the outstanding portfolio balance in the same period.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis on the remaining pool of receivables, and updated its default rate and maintained its recovery assumptions on the outstanding portfolio to 31.6% and 38.4%, respectively, at the AA (high) (sf) credit rating level.

CREDIT ENHANCEMENT
The credit enhancement to the Notes is provided by the subordinated loan and the reserve fund. As of May 2024, the credit enhancement to the Notes increased only marginally to 32.2% from 31.7% at previous annual review, because of the pro rata amortisation between the Notes and the subordinated loan. If a sequential trigger event occurs, then amortisation will be applied sequentially. Sequential trigger events include a cumulative default trigger, a dynamic delinquency trigger, and the subordinated loan balance dropping below 33% of its original balance.

The transaction benefits from a nonamortising reserve account totalling EUR 50 million (1% of the original portfolio). The reserve account is available to cover shortfalls in senior expenses, swap payments, and interest on the Notes as well as amounts on the Notes principal deficiency ledger throughout the life of the transaction.

KBC acts as the account bank and swap counterparty for the transaction. Based on Morningstar DBRS' account bank reference rating of AA on KBC, which is one notch below Morningstar DBRS' Long Term Critical Obligations Rating (COR) on KBC at AA (high), 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 rating on the Notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

KBC's COR is consistent with the first rating threshold as described in Morningstar DBRS' "Derivative 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 does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transactions documents that are not financial obligations.

Morningstar DBRS' long-term credit rating provides opinions on risk of default. Morningstar DBRS considers risk of defaults 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 at: https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structure in its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: "Rating CLOs Backed by Loans to European SMEs" (20 June 2024), https://dbrs.morningstar.com/research/434775.

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 surveillance section of 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 Morningstar DBRS 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 this credit rating include an investor report provided by KBC and loan-level data from 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 rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing this 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 rating action on this transaction took place on 11 July 2023 when Morningstar DBRS confirmed its AA (high) (sf) credit rating on the Notes.
The lead analyst responsibilities for this transaction have been transferred to Shalva Beshia.

Information regarding Morningstar DBRS ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.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):

-- PD Rates Used: Base case PD of 1.8%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 38.4% at the AA (high) (sf) credit rating level, a 10% and 20% decrease on the base-case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stressed recovery-rate levels.

Morningstar DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Notes at AA (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Notes at AA (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 Limited for use in the United Kingdom.
Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Carlos Silva, Senior Vice President
Initial Rating Date: 15 July 2020

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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating CLOs Backed by Loans to European SMEs (20 June 2024) and SME Diversity Model 2.6.1.4,
https://dbrs.morningstar.com/research/434775
-- Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024),
https://dbrs.morningstar.com/research/428544
-- 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
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754
-- 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
-- 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 info-DBRS@morningstar.com.