Morningstar DBRS Finalises Provisional Credit Ratings on ECARAT DE S.A. acting on behalf and for the account of its Compartment 2024-1

DBRS Ratings GmbH (Morningstar DBRS) finalised its provisional credit ratings on the following notes (the Rated Notes) issued by ECARAT DE S.A. acting on behalf and for the account of its Compartment 2024-1 (the Issuer):

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

Morningstar DBRS did not assign a credit rating to the Class G Notes (collectively with the Rated Notes, the Notes) also issued in this transaction.

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

CREDIT RATING RATIONALE
The Issuer is incorporated under the laws of Luxembourg as a société anonyme, and is governed by Luxembourg securitisation law, acting as a special-purpose entity specifically for the purpose of this transaction. The transaction represents the issuance of Notes backed by a pool of receivables related to amortising and balloon loans granted by Stellantis Bank S.A., German Branch (Stellantis Bank or the Originator) to private individual and commercial borrowers resident or incorporated in the Federal Republic of Germany. The underlying receivables relate to the financing of new and used vehicles. Stellantis Bank will also act as the Servicer for the transaction.

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 Rated Notes have been issued.
-- The credit quality of Stellantis Bank’s portfolio, the characteristics of the collateral, its historical performance, and Morningstar DBRS projected behaviour under various stress scenarios.
-- Stellantis Bank's capabilities with respect to originations, underwriting, servicing, and its position in the market and financial strength.
-- The operational risk review of Stellantis Bank, which Morningstar DBRS deems to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The consistency of the transaction’s legal structure with Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” methodology.
-- The consistency of the transaction’s hedging structure with Morningstar DBRS’ “Derivative Criteria for European Structured Finance Transactions” methodology.
-- The sovereign credit rating on the Federal Republic of Germany, currently rated at AAA with a Stable trend by Morningstar DBRS.

TRANSACTION STRUCTURE
The transaction includes a scheduled revolving period of 12 months, during which the Issuer may purchase additional receivables provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied.

During the revolving period, the Issuer applies the available funds in accordance with two separate principal and interest priorities of payments. Prior to a sequential redemption event, principal is allocated to the Notes on a pro rata basis. Following a sequential redemption event, principal is allocated on a sequential basis. Once the amortisation becomes sequential, it cannot switch to pro rata. Sequential redemption events include, among others, the breach of performance related triggers, the Seller not exercising the call option, or a shortage of the liquidity reserve required amount.

The transaction benefits from an amortising liquidity reserve funded at closing to an amount equal to 1.3% of the Class A Notes, Class B Notes, Class C Notes, and Class D Notes' outstanding balance and floored at 0.5% of the aforementioned notes' initial balance as at the closing date. The reserve is only available to the Issuer in restricted scenarios where the interest and principal collections are not sufficient to cover the shortfalls in senior expenses, swap payments, and interest on the Class A Notes and, if not deferred, interest on the Class B Notes, the Class C Notes and the Class D Notes.

Principal available funds may be used to cover senior expenses, swap payments, and interest shortfalls on the Rated Notes in certain scenarios that would be recorded in the transaction’s principal deficiency ledger (PDL) in addition to the defaulted receivables. The transaction includes a mechanism to capture excess available revenue amount to cure PDL debits and also interest deferral triggers on the subordinated classes of Rated Notes, conditional on the PDL debit amounts and seniority of the Rated Notes.

COUNTERPARTIES
HSBC Continental Europe (HSBC) has been appointed as the account bank for the transaction. Morningstar DBRS privately rates HSBC and concluded that the bank meets the criteria to act in this capacity. The Issuer's accounts include the distribution account, the reserve account, and the swap collateral account. The transaction documents contain downgrade provisions relating to the account bank consistent with Morningstar DBRS’ criteria.

BNP Paribas S.A. (BNPP) has been appointed as the swap counterparty for the transaction. Morningstar DBRS has a Long-Term Senior Debt rating of AA (low) and a Long Term Critical Obligations Rating of AA (high) on BNPP, which meets its criteria to act in such capacity. The hedging documents contain downgrade provisions relating to the swap counterparty consistent with Morningstar DBRS’ criteria.

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. For the Rated Notes listed in the table, the associated financial obligations are the respective interest and redemption amounts.

Morningstar DBRS’ credit ratings do not address nonpayment 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 factor(s) 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. Because of 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 Originator and its agents. Morningstar DBRS received the following data:
-- Quarterly default and recovery vintage performance from March 2013 to December 2023, split into total, amortising and balloon loans, and commercial and private subsets;
-- Quarterly dynamic originations data from March 2013 to December 2023, split into total, amortising and balloon loans, and commercial and private subsets;
-- Quarterly dynamic prepayment and arrears data from January 2013 to December 2023, split into total, amortising and balloon loans, and commercial and private subsets; and
-- Portfolio stratification tables as at 12 June 2024 and its related theoretical amortisation schedule.

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

Morningstar DBRS was supplied with one or more 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 financial instruments. These are the first Morningstar DBRS credit ratings on these financial instruments.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://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 with the parameters used to determine the credit ratings (the base case):

-- Expected default rate (PD): 1.75%
-- Recovery rate: 59.5%.
-- Loss given default (LGD): 61.3% for the AAA (sf) scenario

Scenario 1: 25% increase in LGD
Scenario 2: 50% increase in LGD
Scenario 3: 25% increase in probability of default (PD)
Scenario 4: 50% increase in PD
Scenario 5: 25% increase in PD and 25% increase in LGD
Scenario 6: 25% increase in PD and 50% increase in LGD
Scenario 7: 50% increase in PD and 25% increase in LGD
Scenario 8: 50% increase in PD and 50% increase in LGD

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios would be:
-- Class A Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (sf), AA (sf), AA (low) (sf), AA (low) (sf), A (high) (sf)
-- Class B Notes: AA (sf), A (high) (sf), AA (sf), A (high) (sf), A (high) (sf), A (sf), A (sf), A (low) (sf)
-- Class C Notes: A (sf), BBB (high) (sf), A (sf), A (low) (sf), BBB (high) (sf), BBB (sf), BBB (sf), BBB (low) (sf)
-- Class D Notes: BBB (high) (sf), BBB (low) (sf), BBB (high) (sf), BBB (sf), BBB (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf)
-- Class E Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (sf), BB (high) (sf), BB (low) (sf)
-- Class F Notes: B (low) (sf), B (low) (sf), B (low) (sf), B (low) (sf), B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (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: Xiaoxi Sun, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date : 14 June 2024

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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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 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 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
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754
-- 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 [email protected].