Morningstar DBRS Finalises Provisional Credit Rating on Silver Arrow S.A., acting in respect of its Compartment 18

DBRS Ratings GmbH (Morningstar DBRS) finalised its provisional credit rating of AAA (sf) on the Class A Notes issued by Silver Arrow S.A., acting in respect of its Compartment 18 (the Issuer).

Morningstar DBRS did not assign a credit rating to the Class B Notes (together with the Class A Notes, the Notes) also issued in this transaction.

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date.

The transaction constitutes the issuance of Notes backed by a pool of fixed-rate receivables related to auto loans granted by Mercedes-Benz Bank GmbH (MBB; the Originator, the Seller or the Servicer), to private individual and commercial borrowers resident or incorporated in the Federal Republic of Germany. The underlying motor vehicles related to the auto loans consist of both new and used vehicles. MBB also services the receivables.

CREDIT RATIONALE
Morningstar DBRS' credit rating is 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 Class A Notes have been issued.
-- The credit quality of MBB's portfolio, the characteristics of the collateral, its historical performance, and Morningstar DBRS projected behaviour under various stress scenarios.
-- MBB's capabilities with respect to originations, underwriting, servicing, and its position in the market and financial strength.
-- The operational risk review of MBB, 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 rating on the Federal Republic of Germany, currently rated at AAA with a Stable trend by Morningstar DBRS.

TRANSACTION STRUCTURE
The transaction is static, and the Class A Notes will begin to amortise from the first interest payment date. The transaction incorporates a single waterfall that outlines the allocation of the available distribution amount consisting of, inter alia, collections representing interest, principal, and recoveries. The Notes will amortise sequentially, and there will be no payment of principal on the Class B Notes until the Class A Notes have been repaid in full.

The transaction benefits from a nonamortising general reserve funded at closing. The general reserve is available to cover senior fees, senior net interest rate swap payments, and interest on the Class A Notes, while also ultimately providing credit enhancement to the Notes. The general reserve is set at 0.9% of the aggregate outstanding loan principal balance at closing, i.e., EUR 7,000,000 million.

The transaction is exposed to interest rate risk due to the mismatch between the fixed-rate assets and the floating-rate liabilities.

COUNTERPARTIES
Elavon Financial Services DAC (Elavon) has been appointed to act as the account bank for the transaction. Morningstar DBRS privately rates Elavon and concluded that the bank meets the Morningstar DBRS criteria to act in this capacity. The transaction documents contain downgrade provisions consistent with Morningstar DBRS' criteria.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) has been appointed as the swap counterparty for the transaction. Morningstar DBRS has a Long Term Critical Obligations Rating of AA with a Stable trend on DZ Bank, which meets the Morningstar DBRS criteria to act in this capacity. The hedging documents contain downgrade provisions consistent with Morningstar DBRS' criteria.

Morningstar DBRS' credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Class A interest amount and the Class A principal redemption amount.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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
Approximately 49% of the receivables relate to vehicles equipped with a diesel engine. Future restrictions on these vehicle types, including bans and additional taxes, may lead to changes in expected vehicle valuations and borrower behaviours that could subsequently influence future default, recovery, and prepayment activity. Morningstar DBRS considers that this comparatively higher exposure to diesel vehicles is a credit negative, relevant environmental factor within its analysis, namely the E factor "Carbon and Greenhouse Gas (GHG) Costs".

There were no 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 rating is: Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024) https://dbrs.morningstar.com/research/439583.

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.

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 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 include MBB and its agents. Morningstar DBRS received the following set of data:
Static quarterly cumulative gross loss and recovery data from Q2 2019 to Q2 2024;
Dynamic quarterly originations and monthly prepayment, delinquency, and portfolio balances data from July 2019 to June 2024;
Portfolio stratification tables as of 31 August 2024; and
Theoretical amortisation schedule of the portfolio.

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 this credit rating 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 credit rating concerns a newly issued new financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on 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: 1.8%
-- Expected recovery rate: 70.0%
-- Loss given default (LGD): 54.5% for the AAA (sf) scenario

Scenario 1: 25% increase in LGD
Scenario 2: 50% increase in LGD
Scenario 3: 25% increase in 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: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf), AA (high) (sf), AA (sf), AA (sf), and AA (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.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Guglielmo Panizza, Vice President
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Date: 10 October 2024

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 (18 September 2024),
https://dbrs.morningstar.com/research/439583
-- Rating European Structured Finance Transactions Methodology (18 September 2024),
https://dbrs.morningstar.com/research/439581
-- 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 (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- 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/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.