Morningstar DBRS Confirms Credit Ratings on SC Germany S.A., acting on behalf and for the account of its Compartment Consumer 2023-1

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the notes (collectively, the Notes) issued by SC Germany S.A., acting on behalf and for the account of its Compartment Consumer 2023-1 (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (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 BB (high) (sf)

The credit rating on 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 on the Class B Notes, Class C Notes, Class D Notes, and 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 on the Class F Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

CREDIT RATING RATIONALE
The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the July 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Notes to cover the expected losses at their respective credit rating levels.

The transaction is a securitisation collateralised 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; the originator, seller, and servicer). The transaction closed in August 2023 with an initial portfolio of EUR 800 million and included an initial 12-month revolving period, which will end on the August 2024 payment date.
Following the end of the revolving period, the Class A, Class B, Class C, Class D and Class E Notes will start amortising on a pro rata basis and will continue to do so unless a sequential redemption event is triggered. Pursuant to the interest priority of payments, the Class F Notes started amortising from the first payment date using available excess spread, with a target amortisation schedule of 20 equal instalments to be paid after the replenishment of the liquidity reserve.

PORTFOLIO PERFORMANCE
As of the July 2024 payment date, loans that were one to two and two to three months delinquent represented 0.3% and 0.4% of the portfolio balance, respectively, while loans that were more than three months delinquent represented 0.7%. Gross cumulative defaults amounted to 1.2% of the original portfolio balance, with cumulative no material recoveries to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS maintained its base case PD and LGD assumption at 4.75% and 84.0%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior notes, over-collateralisation of the outstanding collateral portfolio and Part 2 of the liquidity reserve (as defined in the next paragraph), provide credit enhancement.
As of the July 2024 payment date, credit enhancement to the Class A, Class B, Class C, Class D, Class E have slightly decreased since the issue date to 24.6%, 19.6%, 14.3%, 9.1% and 3.8%, respectively from 24.8%, 19.8%, 14.5%, 9.3% and 4.0%, respectively. On the other hand, the credit enhancement to the Class F notes slightly increased to 2.8% from 2.7%, due to the early amortization.

The transaction benefits from an amortising liquidity reserve with a target balance at 1.5% of the outstanding balance of the Notes which is replenished in two different positions in the interest waterfall:
-- Part 1 has required amount equal to 1% of the Notes' outstanding amount with a floor amount of EUR 3,916,000 and can cover shortfalls in senior expenses, swap payments, and interest on the Class A Notes and, if not deferred, interest on the Class B through Class F Notes.
-- Part 2 has a required amount defined as the difference between the required aggregate amount and Part 1 and can be used to clear the remaining shortfalls and any debit in the principal deficiency ledgers. The excess reserve amount could also cover items below the reserve replenishment, such as deferred interest on the junior notes and Class F Notes principal.
Since March 2024 payment date the liquidity reserve was not at its target and consequently Class F Notes stopped amortising. As of July 2024 payment date, the liquidity reserve outstanding amount was EUR 10.3 million, below its target at EUR 11.7 million.

A commingling reserve is also available to the Issuer if the rating of Santander Consumer Finance S.A. falls below the required credit rating or Santander Consumer Finance S.A. ceases to have direct ownership of at least 50% of the originator. The required amount is equal to the sum of (A) 1.5 times the scheduled collections for the next month and (B) 2.75% of the outstanding portfolio balance as at the preceding payment date.

The Bank of New York Mellon, Frankfurt Branch acts as the account bank for the transaction. Based on Morningstar DBRS' private credit rating, 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.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank, acts as the swap counterparty for the transaction. Morningstar DBRS reference credit rating at AA (low) is consistent with the first rating threshold as described in Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.
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.

The transaction structure was analysed in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: 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.

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 Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit ratings include investor reports provided by Santander Consumer Bank AG 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 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.

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

The lead analyst responsibilities for this transaction have been transferred to Pascale Kallas.

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 rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):
-- Expected default rate: 4.75%
-- Expected loss given default (LGD): 84.0%
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
Scenario 6: A 50% increase in the expected LGD
Scenario 7: A 25% increase in the expected default and a 50% increase in the expected LGD
Scenario 8: A 50% increase in the expected default and a 50% increase in the expected LGD

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios will be:
-- Class A Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (high) (sf), A (high) (sf), AA (high) (sf), AA (high) (sf), A (high) (sf)
-- Class B Notes: AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (low) (sf), AA (sf), A (high) (sf), A (low) (sf)
-- Class C Notes: A (sf), BBB (high) (sf), A (high) (sf), A (low) (sf), BBB (sf), A (high) (sf), A (low) (sf), BBB (sf)
-- Class D Notes: BBB (sf), BBB (low) (sf), BBB (high) (sf), BBB (low) (sf), BB (high) (sf), BBB (high) (sf), BBB (low) (sf), BB (high) (sf)
-- Class E Notes: BB (sf), B (high) (sf), BB (high) (sf), BB (low) (sf), below B, BB (high) (sf), BB (low) (sf), below B.
-- Class F Notes: BB (low) (sf), below B, BB (sf), below B, below B, BB (sf), below B, below B.

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: Pascale Kallas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 10 July 2023

DBRS Ratings GmbH
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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.

-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051
-- Rating European Structured Finance Transactions Methodology (25 June 2024),
https://dbrs.morningstar.com/research/434970
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- 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 (28 June 2024),
https://dbrs.morningstar.com/research/435278
-- Derivative Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435260
-- 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.