Morningstar DBRS Confirms Credit Ratings on TREVA Equipment Finance SA, Compartment 2021-1

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the bonds issued by TREVA Equipment Finance SA, Compartment 2021-1 (the Issuer), as follows:

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

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the final maturity date in July 2034. The credit ratings on the Class B and Class C Notes address the ultimate payment of interest and the ultimate repayment of principal by the final maturity date in accordance with the Issuer's default definition in the transaction documents (i.e., the timely payment of interest only when they become the most-senior tranche).

CREDIT RATING RATIONALE
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 August 2024 payment date;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions for the outstanding collateral pool; and
-- Current available credit enhancement to rated notes to cover the expected losses at their respective rating levels.

The transaction is a securitisation of a static portfolio of receivables related to lease agreements, excluding the residual value component of the leases, granted by PEAC (Germany) GmbH (PEAC) to commercial lessees residing or incorporated in Germany. The notes benefit from security that the Issuer granted over the assets to Intertrust Trustees GmbH by way of transfer and assignment of the lease receivables, including all present and future rights, claims, interests, and security title to the leased objects.

The transaction features a mixed pro rata/sequential amortisation. The Issuer's available funds are initially allocated pro rata and will switch to a sequential allocation only if a sequential trigger event has occurred. The pro rata allocation considers the notes' relative principal amounts outstanding and the performing collateral portfolio. Once the sequential redemption event is triggered, the principal repayment of the notes will become sequential and is nonreversible until the notes are fully redeemed. As of the August 2024 payment date, no sequential event had occurred.

Interest on the Class C and Class M Notes may be subordinated to protect the payment of principal on the more senior notes. Interest subordination is subject to note-specific conditions that evaluate the actual ranking of the notes and the level of available (over) collateralisation. These subordinations are curable and potentially allow for interest payments previously subordinated to switch back to their higher position in the pre-enforcement priority of payments as soon as the relevant deferral trigger has been remedied. Any subordinated interest is not subject to further interest accruals. As of the August 2024 payment date, no interest subordination trigger has been breached.

PORTFOLIO PERFORMANCE
As of the August 2024 cut-off date, loans that were one to two months in arrears and two to three months in arrears represented 0.4% and 0.3% of the outstanding portfolio balance, respectively. The gross cumulative default ratio was equal to 4.2% of the initial portfolio balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS assumed an annualised PD of 1.95%, down from 2.3% at the last annual review. Morningstar DBRS updated its base case PD and LGD assumptions to 4.3% and 37.7%, respectively, based on the updated historical data received from PEAC and its loan-by-loan analysis on the remaining pool of receivables.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding performing collateral portfolio provides credit enhancement to the rated notes. As of the August 2024 payment date, credit enhancement to the Class A, Class B, and Class C Notes was 20.5%, 14.1% and 9.4%, respectively, slightly up from 10.0%, 13.5% and 8.8%, respectively, as of Morningstar DBRS' initial rating date.

The transaction benefits from liquidity support provided by a cash reserve, which is available to cover the payment of senior expenses, swap payments, and nonsubordinated interest on the rated notes. Its target amount is equal to 0.5% of the outstanding principal balance of the rated notes, subject to a floor of EUR 500,000. As of the August 2024 payment date, the cash reserve was at its target level and floor of EUR 500,000.

BNP Paribas Securities Services, Luxembourg branch (BNP Paribas Luxembourg) acts as the account bank for the transaction. Based on Morningstar DBRS' private rating on BNP Paribas Luxembourg, the downgrade provisions outlined in the transaction documents, and structural mitigants 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.

Interest rate risk for the rated notes is mitigated through an interest rate swap provided by Bank of America Europe Designated Activity Company (BofA DAC). Morningstar DBRS privately rates BofA DAC and the hedging documents contain downgrade provisions consistent with 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 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 this credit rating action include investor reports provided by Intertrust Administrative Services B.V., servicer reports, additional information and the following data provided by PEAC in the context of a new transaction from the same originator:
-- Quarterly cumulative default, recovery, and prepayment vintage data from Q2 2015 to Q4 2024;
-- Annual cumulative default vintages, split by business unit from 2015 to 2024;
-- Annual cumulative recovery vintage data, split by business unit, from 2015 to 2024;
-- Aggregate annual recovery data for contracts where assets were sold, by main equipment type, from 2015 to 2023; and
-- Aggregate recovery timing summary information, by main equipment type, from 2015 to 2023.

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.

The last credit rating action on this transaction took place on 22 September 2023, when Morningstar DBRS confirmed its credit rating on the Class A, B and C Notes at AAA (sf), AA (high) (sf) and A (high) (sf), respectively.

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):
-- 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 loans for the Issuer are 4.3% and 37.7%, respectively.

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

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

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: Pascale Kallas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 29 October 2021

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://dbrs.morningstar.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 and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571.
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435278.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583.
-- Rating CLOs Backed by Loans to European SMEs (18 September 2024) and SME Diversity Model v.2.7.1.4, https://dbrs.morningstar.com/research/439574.
-- Rating European Structured Finance Transactions Methodology (18 September 2024), https://dbrs.morningstar.com/research/439581.
-- 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.