Morningstar DBRS Assigns Credit Rating to Wendelstein 2024-1 UG (haftungsbeschränkt)

DBRS Ratings GmbH (Morningstar DBRS) assigned a credit rating of AA (low) (sf) to the Class A notes issued by Wendelstein 2024-1 UG (haftungsbeschränkt) (the Issuer). Morningstar DBRS did not assign a credit rating of the Class B 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 on or before the legal final maturity date.

Wendelstein 2024-1 represents the securitisation of German residential mortgage loans granted by BHW Bausparkasse AG (BHW or the Original Lender) in Germany. Wendelstein 2024-1 issued two classes of mortgage-backed notes: Class A notes and Class B notes (together the notes). The Class A notes benefit from a 7.25% credit support from the subordinated Class B notes. The proceeds from the issuance of the notes were used by the Issuer to purchase the mortgage loans.

BHW is a 100% subsidiary of Deutsche Bank AG (DB AG), providing mortgage loan and savings products as well as mortgage lending linked with home savings products such as financing, savings, and retirement arrangements.

As of 29 November 2024, the portfolio consisted of 63,106 loans extended to 56,457 borrowers with an aggregate principal balance of EUR 10 billion and comprised entirely of building-saving (Bauspar) mortgage loans. The initial portfolio consisted of 98.4% fixed-rate loans with resets and 1.6% fixed-rate loans for life. The majority of the mortgage loans in the asset portfolio are classified as owner-occupied (80.8%) with the remainder being partially owner-occupied or buy-to-let (BTL) loans. A portion of 14.7% of the initial portfolio are second-lien or lower-ranking mortgage loans. Furthermore, the portfolio consisted of 79.0% bullet loans (pre-financing loans) and 21% amortising loans, whereas 92.9% of the loans were granted to employed borrowers. As of the cut-off date, all mortgage loans were performing.

The mortgage portfolio under Wendelstein 2024-1 will be revolving for a period of three years from the close of the transaction. During this period, the Issuer can purchase additional loans from the Seller in line with the eligibility criteria and the additional purchase criteria and as long as the revolving period termination event has not occurred. This mitigates the risk of any deterioration in the credit risk profile of the mortgage portfolio.

The Class A notes will receive liquidity support from a liquidity facility of up to EUR 45 million. In addition, principal receipts can be used, if the Issuer's revenue receipts are insufficient to pay interest on the Class A notes. The principal receipts will be applied after the drawdown of any funds from the liquidity facility. Although a missed interest payment on the Class A notes on an interest payment date (IPD) is not an event of default, Morningstar DBRS has tested the cash flows of the Class A notes for the timely payment of interest.

The master servicer of the mortgage portfolio is DB AG, which is also the seller in this transaction, with BHW acting as servicer.

The final credit rating is based on Morningstar DBRS' review of the following analytical considerations:
-- The transaction capital structure and form and sufficiency of available credit enhancement.
-- The credit quality of the final mortgage loan portfolio and the ability of the servicers to perform collection activities. Morningstar DBRS calculated the portfolio default rates (PD), loss given default (LGD), and expected loss (EL) outputs on the mortgage loan portfolio. Morningstar DBRS stressed the portfolio in accordance with the relevant additional purchase criteria allowed during the revolving period.
-- The transaction's ability to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents. Morningstar DBRS analysed the transaction cash flows using Intex DealMaker.
-- The consistency of the transaction's legal structure with the Morningstar DBRS Legal and Derivative Criteria for European Structured Finance Transactions methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
-- The relevant counterparties, as rated by Morningstar DBRS, are appropriately in line with Morningstar DBRS legal and derivative criteria to mitigate the risk of counterparty default or insolvency.
-- The structural mitigants in place to avoid potential payment disruptions and replacement language in the transaction documents.
-- Morningstar DBRS' sovereign rating on the Federal Republic of Germany at AAA with a Stable trend as of the date of this report.

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 related Interest Payment Amounts and the related Class Balances.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) 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 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" (13 August, 2024) https://dbrs.morningstar.com/research/437781.

Morningstar DBRS analysed the transaction structure in Intex Dealmaker, considering the default rates at which the rated note did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is:

"Common RMBS Rating Methodology" (18 October 2024) https://dbrs.morningstar.com/research/441432.

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.

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 include DB AG, BHW AG, and their representatives. Morningstar DBRS received a loan-by-loan data tape as of 29 November 2024 as well as historical data covering static defaults, static prepayments, and repossessions spanning a period between 2013 and 2023, as well as dynamic delinquencies for the period from 2014 to 2023. The data provided included both the full mortgage book of BHW as well as only the non-collective loan business from which the pool was sourced.

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 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 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):

-- In respect of the Class A notes, a Probability of Default Rate (PDR) of 12.5% and LGD of 38.9%, corresponding to the AA (low) (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A notes risk sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade of the Class A notes to A (high) (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade of the Class A notes to A (low) (sf).
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade of the Class A notes to A (high) (sf).
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade of the Class A notes to A (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade of the Class A notes to A (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade of the Class A notes to BBB (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade of the Class A notes to BBB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade of the Class A notes to BBB (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: Ronja Dahmen, Vice President,
Rating Committee Chair: Christian Aufsatz, Managing Director,
Initial Rating Date: 19 December 2024

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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.

-- Common RMBS Rating Methodology (18 October 2024),
https://dbrs.morningstar.com/research/441432.
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024),
https://dbrs.morningstar.com/research/443196.
-- 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.
--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.