Morningstar DBRS Assigns AA (sf) Credit Rating to the Class A Notes of German Lion S.A., acting for and on behalf of its Compartment ABS 2024-1

DBRS Ratings GmbH (Morningstar DBRS) assigned a AA (sf) credit rating to the Class A Notes issued by German Lion S.A., acting for and on behalf of its Compartment ABS 2024-1 (the Issuer).

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

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

The transaction is a securitisation of a portfolio of fixed-rate, unsecured, amortising personal instalment loans granted to private individuals domiciled in Germany and serviced by ING-DiBa AG (ING-DiBa).

CREDIT RATING RATIONALE
The 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 Notes are issued.
-- The credit quality of the collateral, historical and projected performance of ING-DiBa's portfolio, and Morningstar DBRS' projected performance under various stress scenarios.
-- An operational risk review of ING-DiBa with regard to its originations, underwriting, servicing, and financial strength.
-- ING-DiBa's financial strength with regard to its respective roles.
-- Morningstar DBRS' long-term sovereign credit rating on the Federal Republic of Germany, currently at AAA with a Stable trend.
-- The consistency of the transaction's structure with Morningstar DBRS' methodologies of "Legal Criteria for European Structured Finance Transactions" and "Derivative Criteria for European Structured Finance Transactions".

TRANSACTION STRUCTURE
The transaction includes a three-year scheduled revolving period during which the Issuer may purchase additional loan receivables on each monthly payment date subject to the eligibility criteria until a termination event occurs.

The transaction allocates payments according to separate interest and principal priorities of payments and benefits from (i) a cash reserve of EUR 53,950,000 at closing which will amortise after the end of the revolving period to a target amount of 1% of the outstanding Class A Notes balance (subject to a floor of EUR 1,000,000) and (ii) an external liquidity facility with a commitment amount equal to 0.3% of the outstanding Class A Notes balance (also subject to a floor of EUR 1,000,000). The required amounts of the cash reserve and the external liquidity facility would be reduced to nil when the Class A Notes are fully repaid or the outstanding amount of the transaction's receivables is nil.

The cash reserve is part of available interest funds to cover shortfalls in senior expenses, senior liquidity amounts, senior swap payments, and interest on the Class A Notes. The cash reserve would be replenished in the interest waterfalls with the excess above the target amount for the repayment of the Class C Notes outside of the transaction waterfalls. Principal funds can also be re-allocated to cover the above shortfalls if the interest collections and cash reserve amount are not sufficient. After the principal available funds, the liquidity facility can be further used to cover the remaining shortfalls.

The repayment of the Notes after the end of the revolving period will be non-reversible and sequential.

The Class A Notes pay floating interest rates based on one-month Euribor, whereas the portfolio comprises fixed-rate loans. The interest rate mismatch risk between the Class A Notes and the portfolio is hedged through an interest rate swap agreement with ING-DiBa.

At inception, the weighted-average portfolio yield was at least 4%, which is one of the portfolio eligibility criteria during the revolving period.

TRANSACTION COUNTERPARTY
ING-DiBa is the account bank, swap provider, and liquidity facility provider for the transaction. Based on Morningstar DBRS' private credit ratings on ING-DiBa, the downgrade provisions outlined in the transaction documents and other mitigating transaction features, Morningstar DBRS considers the risk arising from the exposure to ING-DiBa as the transaction account bank to be consistent with the credit rating assigned to the Class A Notes.

On the other hand, the transaction downgrade provisions with respect to the swap and liquidity facility provider are largely consistent with Morningstar DBRS' criteria.

PORTFOLIO ASSUMPTIONS
The historical performance data covers a long period for vintage analysis. Morningstar DBRS elected to set the portfolio lifetime expected default at 5%. While the historical cumulative net losses by origination vintage have been low, vintage data of cumulative recoveries by default amounts was not available. Morningstar DBRS therefore elected to benchmark the portfolio and set the portfolio expected recovery at 20% or a loss given default (LGD) of 80%.

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 for each class of the Notes are the related Note Interest Amount and initial Principal Amount Outstanding.

Morningstar DBRS' credit ratings do not address non-payment 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
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 environmental, social and governance 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" (18 September 2024) at 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. 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 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 the historical data provided by the originator through the arranger as below:
-- Quarterly static cumulative defaults from Q1 2012 to Q1 2024
-- Quarterly static net losses from Q1 2012 to Q1 2024
-- Monthly dynamic delinquencies from January 2013 to February 2024
-- Monthly dynamic prepayments from February 2014 to January 2024

Morningstar DBRS also received a set of stratification tables in relation to the collateral pool as of 30 September 2024 and its related contractual amortisation schedule.

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 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 financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

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:
-- Expected default: 5%
-- Expected LGD: 80%

Scenario 1: A 25% increase in the expected default
Scenario 2: A 50% increase in the expected default
Scenario 3: A 25% increase in the expected LGD
Scenario 4: A 25% increase in the expected default and a 25% increase in the expected LGD
Scenario 5: A 50% increase in the expected default and a 25% increase in the expected LGD

Morningstar DBRS concludes that the expected credit ratings under the five stress scenarios would be:
-- Class A Notes: A (high) (sf), A (low) (sf), A (high) (sf), A (low) (sf), BBB (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.

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

Lead Analyst: Kevin Chiang, Senior Vice President
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Date: 21 November 2024

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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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.