DBRS Ratings Limited (DBRS) took the following rating actions on the notes issued by Sunrise S.r.l. - Series 2017-1 (the Issuer):
-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)
-- Class M Notes upgraded to AA (high) (sf) from AA (low) (sf)
The ratings on the Class A1 Notes, Class A2 Notes (together, the Class A Notes) and Class M Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in April 2041.
The 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.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels.
The Issuer is a securitisation of unsecured Italian consumer loans granted to retail clients by Agos Ducato S.p.A. (Agos), which is also the Servicer of the portfolio. The EUR 853.8 million portfolio, as of the January 2019 payment date, consisted of auto loans (17.8% of the outstanding portfolio balance), personal loans (78.6%), furniture loans (1.0%) and special-purpose loans (2.6%). Of the portfolio, 70.6% are flexible loans that allow the borrower the option to skip one monthly instalment per year (up to a maximum of five times during the life of the loan) and to modify the amount of the monthly instalments. The transaction included a 12-month revolving period which matured on the March 2018 payment date.
As of the January 2019 payment date, one- to two-month and two- to three-month delinquencies represented 0.6% and 0.4% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.9%. The cumulative default ratio was 1.1%.
DBRS conducted a loan-by-loan analysis of the current pool of receivables and has updated its base case PD and LGD assumptions to 8.6% and 88.9%, respectively.
As of the January 2019 payment date, CE to the Class A1 and Class A2 Notes was 64.4%, up from 40.2% at the DBRS initial rating. CE to the Class M Notes was 38.3%, up from 23.1% at the DBRS initial rating. CE is provided by the subordination of the respective junior obligations and the Cash Reserve. Along with the start of amortisation following the revolving period, these increases additionally reflect the increase in the size of the cash reserve up to its target level after closing using excess spread and drove the DBRS upgrade of the Class M Notes.
The transaction benefits from several funded reserves. The non-amortising Payment Interruption Risk Reserve Account with a current balance of EUR 6.47 million is available to cover senior expenses and interest payments on the rated notes, providing liquidity support to the transaction. Credit support is provided through an amortising Cash Reserve with a target balance equal to 3% of the outstanding performing collateral principal, with a current balance of EUR 25.61 million, which can be used to offset the principal losses of defaulted receivables. An amortising commingling reserve has also been funded, with a current balance of EUR 14.94 million, and may become available to the Issuer upon insolvency of the Servicer or any of the Servicer’s account banks. All reserves are currently at their target levels.
The transaction structure additionally provisions for a Rata Posticipata Cash Reserve which mitigates the liquidity risk arising from flexible loans. This reserve will only funded if, for two consecutive payment dates, the outstanding balance of the flexible loans in relation to which the debtors have exercised the contractual right to postpone the payments is higher than 5% of the outstanding balance of all flexible loans. As of the January 2019 payment date, this condition has not been breached.
Crédit Agricole Corporate and Investment Bank S.A., Milan Branch (CACIB-Milan) acts as the account bank for the transaction. Based on the DBRS private rating of CACIB-Milan, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Class A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
Crédit Agricole Corporate and Investment Bank S.A. (CACIB) acts as the swap counterparty for the transaction. DBRS's private rating of CACIB is consistent with the First Rating Threshold as described in DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”.
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 rating action.
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.
The sources of data and information used for these ratings include investor reports provided by CACIB-Milan, servicer reports provided by Agos and loan by loan data from the European DataWarehouse GmbH.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 21 March 2018, when the ratings of the Class A1, Class A2 and Class M Notes were confirmed at AAA (sf), AAA (sf) and AA (low) (sf), respectively.
The lead analyst responsibilities for this transaction have been transferred to Joana Seara da Costa.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):
-- DBRS expected a lifetime base case PD and LGD for the pool 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 loans for the Issuer are 8.6% and 88.9%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the Base Case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
Class M Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)
For further information on DBRS historic default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 March 2017
DBRS Ratings Limited
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Registered in England and Wales: No. 7139960.
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at firstname.lastname@example.org.