Morningstar DBRS Confirms Ratings on abc SME Lease Germany S.A., acting in respect of its Compartment 8

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the notes issued by abc SME Lease Germany S.A., acting in respect of its Compartment 8 (the Issuer) as follows:

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

The credit ratings on the notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in August 2032.

The confirmations 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 June 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective credit rating levels; and
-- No revolving termination events.

The transaction is a revolving securitisation of receivables related to commercial leases extended to small and medium-size enterprises and self-employed individuals in Germany. abcfinance GmbH (abcfinance), ETL Finance GmbH & Co. KG, milon financial services GmbH, Hako Finance GmbH, and Schneidereit Finance GmbH (all either majority- or fully owned subsidiaries of abcfinance) originated and subservice the leases while abcbank GmbH (abcbank) acts as the master servicer. The transaction closed in August 2022 with an initial portfolio of EUR 519.5 million and included a 24-month revolving period, scheduled to end on the August 2024 payment date.

PORTFOLIO PERFORMANCE
As of the June 2024 payment date, receivables that were up to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.6%, 0.4%, and 0.0% of the outstanding collateral balance, respectively. Receivables more than 90 days delinquent amounted to 0.3% of the outstanding collateral balance, up from 0.1% at the previous annual review one year ago. Gross cumulative defaults (defined as receivables at least 180 days in arrears per the transaction documentation) amounted to 1.2% of the aggregate initial portfolio balance, up from 0.4% in the same period. 24.6% of the defaults has been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 3.8% and 48.4%, respectively. The improvement in the base case PD assumption from 6.6% at previous annual review is driven by the switch of the asset analysis away from the worst-case portfolio composition, as dictated by the concentration limits applicable during the revolving period, to the current portfolio.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the rated notes. As of the June 2024 payment date, credit enhancement to the Class A and Class B Notes remained at 15.0% and 13.8%, respectively, unchanged from the initial credit rating date due to the revolving period, which is scheduled to end on the August 2024 payment date, after which the notes are expected to begin amortising.

The transaction benefits from liquidity support provided by a cash reserve, available to cover senior expenses and interest payments due on the Class A and Class B Notes. The reserve was funded to EUR 6.8 million at closing through a subordinated loan granted by abcbank, and has a target balance equal to 1.3% of the outstanding principal balance of the notes, subject to a floor of EUR 3.4 million. As of the June 2024 payment date, the reserve remained at its target balance of EUR 6.8 million.

Citibank Europe plc, Germany branch acts as the account bank for the transaction. Based on Morningstar DBRS' AA (low) credit rating on Citibank Europe plc, 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 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 rating provides 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 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 Factors in Credit Ratings at: https://dbrs.morningstar.com/research/437781.

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" (6 August 2024), https://dbrs.morningstar.com/research/437540.

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.

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 and information provided by abcbank as well as 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 ratings, 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 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 17 August 2023, when Morningstar DBRS confirmed its AAA (sf) and AA (high) (sf) credit ratings on the Class A and Class B Notes.

The lead analyst responsibilities for this transaction have been transferred to Shalva Beshia.

Information regarding Morningstar DBRS credit 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 ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings (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 receivables for the Issuer are 3.8% and 48.4%, respectively.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base case assumption.

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

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

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 19 August 2022

DBRS Ratings GmbH
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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://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (6 August 2024), https://dbrs.morningstar.com/research/437540.
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- Operational Risk Assessment for European Structured Finance Originators (6 August 2024), https://dbrs.morningstar.com/research/437541
-- Operational Risk Assessment for European Structured Finance Servicers (6 August 2024), https://dbrs.morningstar.com/research/437543
-- Rating CLOs Backed by Loans to European SMEs (20 June 2024) and SME Diversity Model v2.7.1.4,
https://dbrs.morningstar.com/research/434775
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024), https://dbrs.morningstar.com/research/426219
-- Rating European Structured Finance Transactions Methodology (25 June 2024), https://dbrs.morningstar.com/research/434970
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings
(13 August 2024), https://dbrs.morningstar.com/research/437781

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.