Rating action

Scope Ratings GmbH (Scope) has performed the following rating action after completing a monitoring review on the notes issued by Debt Marketplace SARL - Compartment B:

Fixed rate notes; EUR 49.3m outstanding; upgraded to BBB+_SF from BBB-_SF

Scope’s review was based on investor and payment reporting as of the July 2023 payment date.

Transaction overview

The transaction is a German cash securitisation of bike lease receivables issued in August 2021. A detailed description of the transaction features and analytical assumptions, at closing, can be found in the transaction´s rating report, available at Scope´s website.

As of the reporting cut-off date (July 2023), the underlying portfolio of assets has an expected remaining weighted average life (assuming zero defaults and prepayments) of approximately 0.8 years, and the pool factor stands at 0.45. Overcollateralisation has evolved as follows since closing: increased to 106.3%, from 104.9%.

The non-amortising reserve fund is at 115.7% of its target level, equivalent to 11.7% of the outstanding size of the notes.

During the latest interest payment date, the IRR of the remaining portfolio equalled 6.2%.

The issuer remains primarily exposed to the following counterparties: Hofmann Leasing GmbH as originator and servicer, BLS Beteiligungs GmbH as operational servicer, Banque et Caisse d’Épargne de l’état Luxembourg as issuer account bank, and Kreissparkasse Northeim as servicer account bank.

Rating rationale

The review addressed a) the observed performance of the collateral as of the review cut-off date, b) Scope´s forward-looking performance assumptions, in the context of the expected macro-economic environment over the remaining life of the transaction, c) the transaction´s updated asset and liability structure, and d) the issuer´s exposure to key transaction parties.

Beyond the key rating drivers addressed further below, the main analytical considerations addressed during this periodic review are:

Observed collateral performance: Overall, the portfolio has performed better than expected by Scope since our last rating action. The following key metrics, as of the reporting cut-off date, reflect the overall portfolio performance: Cumulative default rate: 0.15%; observed to date recovery rate on defaulted exposures 37%.

Expected collateral performance: Portfolio remaining lifetime default rates are approximated through a non-parametric distribution obtained by Monte Carlo simulation based on the July 2023 portfolio metrics. We have adjusted the mean parameter of the distribution to 0.98% from 2.04% at closing. This update reflects mainly the portfolio reduced remaining life. Other asset assumptions, such as recovery rates and prepayments, remain unchanged.

Notes amortisation: The updated capital structure is positive for the notes rating. The realised deleveraging of the capital structure reflects the amortisation of the notes, in accordance with the rules of the transaction´s waterfall.

Available excess spread: Realised cumulative defaults since closing have been fully provisioned for with available credit enhancement stemming from the applied discount on the assets at purchase exceeding interest on the notes and issuer expenses. Available excess spread could decrease going forward, for instance from higher servicing fees upon a servicer termination event.

Liquidity protection: Available liquidity continues to support the ratings of the notes, in accordance with Scope’s General Structured Finance Methodology. The current size of the cash reserve provides ample liquidity protection.

Interest rate risk: The structure is not exposed to interest rate risk as the notes pay fixed rate and the assets do not embed an interest component.

Counterparty risk: The key transaction counterparties continue to support the ratings. No rating-change drivers related to counterparty risks have taken place since our last rating action. 

Key rating drivers

The key rating drivers continue to be aligned with those disclosed on our rating action release dated 12 October 2021, with the following exceptions:

• Commingling risk in event of servicer default¹: The requirement of pre-funding the issuer account with expected collections at least five business days before the end of each month ceased because the servicer is in receipt of a satisfactory issuer credit rating from Scope Ratings GmbH.

Key rating-change drivers

All else equal, the following factors may constitute upside or downside rating drivers:

• A material deviation of observed transaction performance from Scope´s forward looking performance assumptions.
   
• Material changes in Scope´s forward-looking macro-economic outlook.

All else equal, the following factors may constitute upside rating drivers:

• Continued deleveraging of the capital structure and the reduction of the transaction´s risk horizon.

All else equal, the following factors may constitute downside rating drivers:

• Rating downgrade of a transaction´s key counterparty beyond a level which would cease to be compliant with Scope´s Counterparty Methodology.

Quantitative analysis and assumptions

Scope analysed the July 2023 cut-off portfolio on a lease-by-lease basis using a Monte Carlo simulation. For each lease, Scope assumed: i) a specific default probability of the lease’s underlying obligor; and ii) asset correlations between the leases ranging from 7% to 27%. Scope’s assumption on obligors’ credit quality, did not change from closing, assuming the underlying borrowers’ credit quality is commensurate with a rating between BB and BB+. This reflects the targeted borrowers’ characteristics, i.e. German small-to-medium size, general risky credit profile. The resulting default distribution has a mean default rate of 0.98% and an implicit coefficient of variation of 107% over a weighted average portfolio life of 0.8 years.

Using the resulting default rate distribution, Scope projected the transaction’s cash flows. Other key analytical assumptions include the following: Rating-conditional recovery rates ranging from 50% under a B scenario to 30% under a AAA scenario; constant prepayment rate scenario of 0%; and stressed senior fees of 0.5%.

The rating assigned to the notes reflects the expected losses over the instrument’s expected risk horizon, commensurate with the idealised expected loss table. 

Sensitivity analysis

Scope tested the resilience of the credit rating against deviations in the main input parameters: the portfolio credit quality and the portfolio recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

• A one notch decrease in the portfolio’s credit quality assumption has a zero-notch quantitative impact on the notes.
   
• A 50% decrease in Scope´s rating-conditional recovery rate assumptions has a zero-notch quantitative impact on the notes.

Rating driver references
1. Transaction reporting (Confidential)

Stress testing
Stress testing was considered in the quantitative analysis by considering scenarios that stress factors, like defaults and Credit-Rating-adjusted recoveries, contributing to sensitivity of Credit Ratings and consider the likelihood of severe collateral losses or impaired cash flows. The impact on the rated instruments is weighted by the assumptions of the likelihood of the events in such scenarios occurring.

Cash flow analysis
Scope Ratings primarily analysed the distribution of portfolio losses and its impact on the rated instruments, with the use of Scope Ratings’ Portfolio Model Version 1.1.
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ Cash Flow SF EL Model Version 1.1, incorporating relevant asset assumptions, and taking into account the transaction’s main structural features, such as the instruments’ priority of payments, the instruments’ size and coupons. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodologies used for this Credit Rating, (General Structured Finance Rating Methodology, 25 January 2023; Counterparty Risk Methodology, 13 July 2023; Consumer and Auto ABS Rating Methodology, 3 March 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The models used for this Credit Rating are (Portfolio Model Version 1.1, Cash Flow Structured Finance Expected Loss Model Version 1.1), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.

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 this 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 at closing. 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: Martin Hartmann, Director
Person responsible for approval of the Credit Rating: Antonio Casado, Executive Director
The final Credit Rating was first released as Restricted Subscription Rating by Scope Ratings on 9 August 2021. The Credit Rating was last updated on 12 October 2021.

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

Conditions of use / exclusion of liability
© 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund 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.