Morningstar DBRS Upgrades Credit Ratings on Deutsche Bank A.G. Conditional Pass-Through Structured Covered Bonds (Structured - Mortgages) Guaranteed by SCB Alpspitze UG to AA (high)

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit ratings on the notes issued under the Deutsche Bank AG (DB AG or the Issuer) Conditional Pass-Through Structured Covered Bonds Programme (the programme) guaranteed by SCB Alpspitze UG to AA (high) from AA. The credit rating actions follow Morningstar DBRS' full review of the programme.

This credit rating action reflects the interest rate decrease that has occurred since the 2023 annual review, which has impacted our analysis of the cash flows on the cover pool assets and the liabilities of the programme, leading to a higher Cover Pool Credit Assessment.

There are three series of covered bonds (CBs) outstanding under the programme, totalling a nominal amount of EUR 3.31 billion.

CREDIT RATING RATIONALE

The credit ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (high), which is one notch below the Long Term Critical Obligations Rating (COR) of DB AG. DB AG is the Reference Entity (RE) for the programme. Morningstar DBRS assigned a CBAP that is one notch below the COR even if the programme can be seen as strategic to funding the RE's primary activity, departing from the notching schedule guideline proposed in the "Rating and Monitoring Covered Bonds" global methodology. For more information, please refer to the rating report at www.dbrsmorningstar.com.
-- A Legal and Structuring Framework (LSF) Assessment of "Very Strong" associated with the programme.
-- A Cover Pool Credit Assessment (CPCA) of A (low), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA.
-- A one-notch uplift for good recovery prospects.
-- The level of overcollateralisation (OC) of 32.5% to which Morningstar DBRS gives credit, which is the minimum level observed in the past 12 months adjusted by a scaling factor of 0.85.
-- The sovereign rating on the Federal Republic of Germany, rated AAA with a Stable trend by Morningstar DBRS, as of the date of this press release.

Morningstar DBRS analysed the transaction using its European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, and interest rate stresses.

Everything else being equal, a two-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CB credit ratings. In addition, all else unchanged, the CB credit ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below A (low); (2) the LSF Assessment associated with the programme was downgraded to "Average" or below; or (3) the quality of the cover pool (CP) and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects.

As of 30 September 2024, the aggregated outstanding balance of the CP underlying the Issuer's CB was EUR 4.6 billion. The total amount of liabilities outstanding is EUR 3.31 billion, yielding a current nominal OC ratio of 38.3%. The Issuer has publicly committed to maintain an OC level of 15.0%.

As of September 2024, the CP assets comprised 47,745 residential mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 73%, a WA seasoning of 66 months, and a WA remaining time to maturity of 214 months. The CP is located mainly in the German regions of North Rhine-Westphalia (30% by outstanding balance), Baden-Wuerttemberg (11%), and Lower Saxony (8.4%). Almost all (roughly 99%) of the retail pool yields a fixed coupon and 88% is fully amortising.

The Morningstar DBRS-calculated WA life of the mortgage assets is roughly 11 years based on a 0% prepayment rate, which is longer than the 2.8 years of WA life on the CB, not accounting for any maturity extension. This risk is mitigated by the conditional pass-through nature of the CB.

All CP assets and CB are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.

Morningstar DBRS assessed the LSF related to the programme as "Very Strong" according to its rating methodology. For more information, please refer to the DB AG structured CB rating report at www.dbrsmorningstar.com.

For further information on the programme, please refer to the rating report at www.dbrsmorningstar.com.

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
Credit rating actions on Deutsche Bank AG are likely to have an impact on these credit ratings. ESG factors that have a significant or relevant effect on the credit analysis of Deutsche Bank AG are discussed separately at https://dbrs.morningstar.com/issuers/6178.
 
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 (2024-08-13)

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: "Global Methodology for Rating and Monitoring Covered Bonds" (2 April 2024) https://dbrs.morningstar.com/research/430636/.

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 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 investor reports and loan-by-loan data of the CP as at 30 September 2024, and dynamic delinquencies (90+ days) by vintage of origination, spanning from 2010 to H2 2023, provided by the issuer.

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 not 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.

The last credit rating action on this transaction took place on 17 November 2023, when Morningstar DBRS confirmed the credit ratings on the notes.

The lead analyst responsibilities for this transaction have been transferred to Alejandro Tendero Delicado.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

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: Alejandro Tendero Delicado, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 1 November 2019

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.

-- Global Methodology for Rating and Monitoring Covered Bonds (2 April 2024),
https://dbrs.morningstar.com/research/430636
-- Global Methodology for Rating Banks and Banking Organisations (4 June 2024),
https://dbrs.morningstar.com/research/433881
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- Common RMBS Rating Methodology (18 October 2024),
https://dbrs.morningstar.com/research/441432
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571
-- Global Methodology for Rating Sovereign Governments (15 July 2024),
https://dbrs.morningstar.com/research/436000
-- 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.