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Rating action

Scope Ratings GmbH (Scope) has today affirmed and published final rating of BBB-_SF to the lessee payment contingent fixed rate notes issued by Debt Marketplace Sarl - Compartment B, a cash securitisation of an up to EUR 105.55mn portfolio of electric bike lease receivables originated by Hofmann Leasing GmbH, with a corresponding total issuance amount of up to EUR 100mn.

Transaction overview

The notes are backed by a portfolio of bicycle leases and the respective bicycles, originated in Germany and Austria by Hofmann Leasing GmbH (Hofmann Leasing). The underlying assets will be pooled and allocated to a note over an issuance period of up to nine months with periodic issuances (note taps) by Debt Marketplace SARL, acting through its compartment B.

The securitised product is lease receivables composed of lease instalments and the associated assets’ (bicycles) residual value. The lessee pays monthly installments, based on a lease factor on the net purchase price plus the mandatory insurance fees and any additional optional insurance payments. The transfer value of receivables is based on an initial discount rate, which shall be adjusted downwards by 75 bps if the operational servicer receives an issuer credit rating of at least satisfactory credit quality from Scope.

The transaction features an amortisation schedule for the fixed rate notes and adjusts for the level of cumulative observed defaults and remaining length of the amortisation period. These principal payments on the note are payable after the end of the issue period in April 2022. The fixed coupon rate on the notes is 1.25% per annum.

Rating rationale

The ratings reflect the legal and financial structure of the transaction; the credit quality of the collateral in the context of the macroeconomic conditions and historical performance of bike leasing receivables in Germany; the ability of the originator and servicer Hofmann Leasing; and the counterparty exposures to BLS Bikeleasing Service GmbH & Co. KG as operational servicer, Kreissparkasse Northeim as the servicer account bank, Banque et Caisse d’Épargne de l’état Luxembourg (‘BCEE’) as the issuer account bank and CrossLend GmbH as the calculation agent, administrator and registrar.

Scope has accounted for a potential downward adjustment of the transfer value discount rate, should the servicer receive an issuer credit rating of at least satisfactory credit quality from Scope. Notwithstanding, the notes will benefit from significant excess spread derived from the transfer value of the receivables. Due to a cash sweep mechanism, the issuer account shall maintain a minimum balance of EUR 5m, which can be used to cover note losses at the transaction’s termination.

The ratings reflect the counterparty credit risk in the transaction and its mitigants. Servicer commingling exposure to Hofmann Leasing is mitigated through a pre-funding requirement of expected collection amounts five business days prior to the end of each month. Furthermore, rights to the collection account are pledged in favour of the issuer.

Key rating drivers

Potential positive bias in obligor credit quality (positive)¹. Obligor selection based on third-party credit scores allows for a positive selection of obligors (employers). This is expressed as concentration limits for higher score (lower credit quality) bands and a cap on the weighted average score (floor on credit quality) for the portfolio.

Overcollateralisation (positive)¹. The issuer acquires the portfolio at a discount, which provides the funds to cover the senior portfolio servicing costs and the note’s coupon.

Guaranteed residual value of collateralised assets (positive)¹. The issuer has a guarantee (from the operational servicer) that it will receive at least 10% of the net purchase price of the leased bikes at the end of the term.

Commingling risk in event of servicer default (negative)¹. In the event of a servicer default, cash in the servicer account may not be swept into the issuer accounts in a timely manner. However, this risk is partially mitigated by a requirement to pre-fund the issuer account with expected collections at least five business days before the end of each month.

No back-up servicer (negative)¹. There is no back-up servicer appointed at closing. In the event of a servicer default, this may lead to delays in the resumption of cash flow from receivables and lead to higher costs related to the reappointment of a replacement servicer.

Rating-change drivers

Improvements in the macroeconomic environment (upside). In its baseline scenario, Scope expects a robust recovery for the German economy in 2021, with 3.5% expected growth in real GDP. A stronger macroeconomic environment may support the credit quality of the obligors, resulting in a lower-than-expected default rate and thus enhancing support for the rated notes.

Worse-than-expected asset performance (downside). The rating is sensitive to stressed default rate assumptions, as shown by Scope’s sensitivity analysis. If the implied positive bias towards obligor credit quality based on third-party credit quality scores does not materialise through the life of the transaction, this may result in higher-than-expected defaults and lead to higher losses for noteholders.

Quantitative analysis and assumptions

Scope considered the portfolio eligibility criteria, such as the portfolio concentration limits by sector, and inferred obligors’ credit quality based on these criteria in order to model a representative portfolio. Scope determined: i) pairwise asset correlations with the other borrowers in the pool; ii) a one-year default probability extrapolated in accordance with Scope’s idealised default probability tables over the transaction’s lifetime; and iii) a recovery rate upon default. Scope then analysed the reference portfolio’s performance using a single-step Monte Carlo simulation that implements a Gaussian-copula dependency framework. The resulting default distribution and default timings were then used together with rating-conditional recovery assumptions in a cash flow model to determine the expected loss and expected weighted average life of the notes, reflecting the structural features of the transaction.

Scope’s assumptions related to pairwise asset correlations range from 7% to 27% and are composed of additive factors reflecting the borrowers’ exposure to common factors, i.e. a global factor of 2%, a country factor of 5% and an industry factor of 20%.

Scope considered a portfolio lifetime mean default rate of 2.05% and an implicit coefficient of variation of 115% over a pool weighted average life of 1.65 years. The calculations were based on a Monte Carlo simulation of the portfolio. These assumptions represent a long-term view of the portfolio’s credit performance and incorporate the credit quality implied by the portfolio eligibility criteria.

Scope considered a base case recovery rate for the portfolio of 50% applicable for a B category rating. Rating-conditional haircuts of 40% were applied for a AAA rating target, 32% for AA, 24% for A, 16% for BBB and 8% for BB.

Sensitivity analysis

Scope tested the resilience of the ratings to deviations in the main input parameters: the mean default rate and the portfolio recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the ratings to input assumptions and is not indicative of expected or likely scenarios. The following shows how the results for each rated tranche change compared to the assigned ratings when the assumed mean default rate increases by 50% or the portfolio’s expected recovery rate decreases by 50%, respectively:

1. Increase in mean default rate, one notch decrease
    
2. Decrease in expected recovery rate, one notch decrease 

* This sentence was added on 6 December 2021. In the original publication the sentence was not included. 

Rating driver references
1. Transaction documents (Confidential)

Stress testing
Stress testing was performed by applying Credit-Rating-adjusted recovery rate assumptions.

Cash flow analysis
Scope Ratings primarily analysed the distribution of portfolio losses and its impact on the rated instruments using Scope’s Portfolio Model (Model) Version 1.0.2.
Scope Ratings performed a cash flow analysis of the transaction using Scope’s Cash Flow SF EL Model Version 1.1, incorporating default and recovery rate assumptions over the portfolio’s amortisation period and taking into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

Methodology
The methodologies used for this Credit Rating were the General Structured Finance Rating Methodology (14 December 2020), the Methodology for Counterparty Risk in Structured Finance (13 July 2021) and the Consumer and Auto ABS Rating Methodology (3 March 2021), available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.

Solicitation, key sources and quality of information
The Rated Entity and its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings has not received a third-party asset due diligence assessment. Scope Ratings has performed its own analysis of the data quality, based on information received from the Rated Entity or Related Third Parties, which is not and should be not deemed equivalent to the performance of due diligence or an audit. The internal analysis was considered when preparing the Credit Rating and it has no impact on the Credit Rating.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and the principal grounds on which the Credit Rating are based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
The Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Chirag Shekhar, Analyst
Person responsible for approval of the Credit Rating: Antonio Casado, Executive Director
The Credit Rating was first released as Restricted Subscription Rating by Scope Ratings on 9 August 2021. The Credit Rating was converted to public on 12 October 2021.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.