Morningstar DBRS Upgrades and Confirms Credit Ratings on KMU Portfolio S.A., Compartment 2015-1

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes (collectively, the Rated Notes) issued by KMU Portfolio S.A., Compartment 2015-1:

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class C Notes upgraded to AAA (sf) from AA (low) (sf)

The credit ratings address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in March 2031.

The credit rating actions 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 December 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and,
-- Current available credit enhancement to the Rated Notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a securitisation of German commercial loans originated and serviced by akf bank GmbH & Co. KG (akf bank). As of the December 2024 payment date, the EUR 153.4 million portfolio consisted of auto loans (17.5% of the outstanding discounted principal balance), commercial vehicle loans (29.7%), machinery loans (12.1%), other equipment loans (39.5%), and ship loans (1.2%). Of the loans in the pool, 28.3% include a balloon payment.

PORTFOLIO PERFORMANCE
As of the December 2024 payment date, loans that were more than one month delinquent represented 0.5% of the outstanding collateral balance. Gross cumulative defaults amounted to 1.9% of the aggregate initial portfolio balance, 67.5% of which has been recovered so far.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the pool receivables and updated its base-case PD and LGD assumptions to 3.73% and 76.9%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior notes provides credit enhancement to the Rated Notes. As of the December 2024 payment date, the credit enhancement to the Class A, Class B, and Class C Notes stood at 68.6%, 39.9%, and 25.6%, up from 33.1%, 18.3%, and 11.0%, respectively, at the time of the last annual review. The significantly increased credit enhancement prompted the upgrades on the Class B and Class C Notes.

The transaction closed with the support of a EUR 2.5 million cash reserve, available to cover shortfalls on senior fees and interest on the Rated Notes. To maintain the same proportional amount of credit enhancement to the Rated Notes, this reserve was increased to EUR 4.0 million in April 2017. It amortises with the Rated Notes to a target level equal to 1.0% of the aggregated balance of all notes, subject to a floor of EUR 0.5 million. As of the December 2024 payment date, the reserve was at its target balance of EUR 1.46 million.

The Bank of New York Mellon, Frankfurt Branch (BNY Mellon Frankfurt) acts as the account bank for the transaction. Based on Morningstar DBRS' private credit rating on BNY Mellon Frankfurt, the downgrade provisions outlined in the transaction documents, and other mitigating factors 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 Rated Notes, as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.
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. Where applicable, a description of these financial obligations can be found in the transactions' respective press release 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, 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 the "Master European Structured Finance Surveillance Methodology" (19 November 2024), https://dbrs.morningstar.com/research/443204.

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 these credit ratings include monthly investor reports provided by akf bank and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial credit ratings, Morningstar DBRS was supplied with third-party assessments. However, this did not impact 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 18 December 2023, when Morningstar DBRS confirmed its credit rating on the Class A Notes at AAA (sf) and upgraded its ratings on the Class B and Class C Notes to AA (high) (sf) and AA (low) (sf), respectively, from AA (low) (sf) and A (low) (sf).

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 (the base case):

-- Morningstar DBRS expected a base-case PD and LGD for the portfolio 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 receivables are 3.7% and 76.9%, respectively.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption.

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

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

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (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: Daniel Rakhamimov, Assistant Vice President
Credit Rating Committee Chair: Mark Wilder, Senior Vice President
Initial Credit Rating Date: 13 August 2015

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.

-- Master European Structured Finance Surveillance Methodology (19 November 2024),  
https://dbrs.morningstar.com/research/443204
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024),
https://dbrs.morningstar.com/research/439583
-- Rating European Structured Finance Transactions Methodology (19 November 2024),
https://dbrs.morningstar.com/research/443199 
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), 
https://dbrs.morningstar.com/research/443196  
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), 
https://dbrs.morningstar.com/research/439571 
-- 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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.