Morningstar DBRS Assigns Provisional Credit Ratings to Pepper Iberia Consumer 2024 Fondo de Titulización

DBRS Ratings GmbH (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes (collectively, the Rated Notes) to be issued by Pepper Iberia Consumer 2024 Fondo de Titulización (the Issuer):

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

Morningstar DBRS did not assign a provisional credit rating to the Class J Notes also expected to be issued in this transaction.

The credit ratings of the Class A, Class B and Class C Notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The credit rating of the Class D Notes addresses the ultimate payment of interest but timely as the most senior class outstanding and the ultimate repayment of principal by the legal final maturity date.

The transaction is a securitisation of fixed-rate, unsecured, amortising point-of-sale and personal instalment loans granted to individuals domiciled in Spain by Pepper Finance Corporation S.L.U. (the seller).

CREDIT RATING RATIONALE
Morningstar DBRS' credit ratings of the Rates Notes 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 are issued;
-- The credit quality of the seller's portfolio, the diversification of the collateral, the historical performance, and Morningstar DBRS' projected performance under various stress scenarios;
-- Morningstar DBRS' operational risk review of the seller's capabilities with regard to origination and underwriting;
-- The capabilities of Pepper Assets Services S.L.U. with respect to the servicing;
-- The transaction parties' financial strength with regard to their respective roles;
-- The expected consistency of the transaction's structure with Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" and "Derivative Criteria for European Structured Finance Transactions" methodologies; and
-- Morningstar DBRS' long-term sovereign credit rating on the Kingdom of Spain, currently at "A" with a Positive trend.

TRANSACTION STRUCTURE
The transaction has a scheduled revolving period of 24 months with separate interest and principal waterfalls for the available distribution amount. During the revolving period, the seller may offer additional receivables that the Issuer will purchase, provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers or insolvency of the seller.

After the end of the scheduled revolving period, the Rated Notes will be repaid sequentially. The transaction benefits from an amortising liquidity reserve expected to be fully funded at closing by the Class J Notes issuance proceeds. The cash reserve will amortise to a target amount equal to 1.25% of the Class A, Class B, Class C and Class D Notes outstanding principal balance without a floor and can be used to cover senior expenses, servicing fees, senior swap payments and interest on the most senior class of Rated Notes.

The transaction also benefits from a principal deficiency ledger mechanism to capture excess spread to cure principal deficiencies. Principal funds can also be reallocated to cover senior expenses, servicing fees, senior swap payments and interest payments on the most senior class of the Rated Notes if the interest collections and reserve are not sufficient.

The transaction is expected to have an interest rate swap to mitigate the interest rate mismatch risk between the fixed-rate collateral and the floating-rate Rated Notes. The swap notional amount is based on a scheduled amount derived from certain prepayment and default assumptions.

TRANSACTION COUNTERPARTIES
Banco Santander SA is the account bank for the transaction. Morningstar DBRS has a Long-Term Issuer Rating of A (high) on Banco Santander SA, which meets Morningstar DBRS' criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with Morningstar DBRS' criteria.

Banco Santander SA is also the interest rate swap provider for the transaction, which meets Morningstar DBRS' criteria to act in such capacity. The transaction documents contain downgrade provisions largely consistent with Morningstar DBRS' criteria.

PORTFOLIO ASSUMPTIONS
Morningstar DBRS established a lifetime expected default of 4.8%, reflecting the historical performance of each loan type and the potential portfolio migration during the revolving period. Morningstar DBRS also revised the expected recovery to 22% from 17% applied in the Pepper Iberia Unsecured 2022 DAC transaction, after considering the longer data series and improved performance because of different measures implemented by the seller.

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. The associated financial obligations for each of the Rated Notes are the related Notes Interest Amounts and the initial Principal Amount Outstanding.

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 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 "Rating European Consumer and Commercial Asset-Backed Securitisations" (22 August 2024) at https://dbrs.morningstar.com/research/438224.

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

The sources of data and information used for these credit ratings include the following data provided by the seller or through the arranger, Jefferies GmbH:

Personal instalment loans:
-- Quarterly static cumulative default data from Q3 2015 to Q2 2024;
-- Quarterly static cumulative recovery data from Q4 2015 to Q2 2024;
-- Monthly dynamic delinquencies from July 2015 to August 2024;
-- Monthly dynamic prepayments from January 2015 to August 2024.

Point-of-sale loans:
-- Quarterly static cumulative default data from Q1 2015 to Q2 2024;
-- Quarterly static cumulative recovery data from Q2 2015 to Q2 2024;
-- Monthly dynamic delinquencies from January 2015 to August 2024;
-- Monthly dynamic prepayments from January 2015 to August 2024.

Morningstar DBRS also received a set of stratification tables, loan-by-loan data, and its related contractual amortisation profile as of 31 August 2024.

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

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalise the credit ratings.

These credit ratings concern expected-to-be-issued new financial instruments. These are the first Morningstar DBRS credit ratings on these financial instruments.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available at 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:

-- Expected default of 4.8%
-- Expected recovery of 22% or expected loss given default (LGD) of 78%

Scenario 1: 25% increase in expected default
Scenario 2: 50% increase in expected default
Scenario 3: 25% increase in expected LGD
Scenario 4: 50% increase in expected LGD
Scenario 5: 25% increase in both expected default and expected LGD
Scenario 6: 25% increase in expected default and 50% increase in expected LGD
Scenario 7: 50% increase in expected default and 25% increase in expected LGD
Scenario 8: 50% increase in both expected default and expected LGD

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

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

Lead Analyst: Roberto Perez, Assistant Vice President
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Credit Rating Date: 18 September 2024

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81, Plantas 26 & 27
28046 Madrid, Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
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.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (22 August 2024),
https://dbrs.morningstar.com/research/438224
-- Rating European Structured Finance Transactions Methodology (25 June 2024),
https://dbrs.morningstar.com/research/434970
-- 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
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435278
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024),
https://dbrs.morningstar.com/research/439043
-- 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 http://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.