DBRS Ratings GmbH (DBRS) took the following rating actions on the notes issued by Sunrise S.r.l. - Series 2016-1 (the Issuer):
-- Class A1 Notes were discontinued
-- Class A2 Notes were discontinued
-- Class M Notes were upgraded to AAA (sf) from AA (high) (sf)
The discontinuations reflect the payment in full of the Class A1 Notes and Class A2 Notes on 27 March 2019. The outstanding balances of the Class A1 and Class A2 Notes prior to their full redemptions were EUR 14,352,784.74 and EUR 1,075,918.19, respectively. Both were rated AAA (sf).
The upgrade of the rating on the Class M Notes follows an annual review of the transaction and is 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 the AAA (sf) rating level.
The rating on the Class M Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in July 2040.
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 455.8 million portfolio, as of the April 2019 payment date, consisted of auto loans (15.0% of the outstanding portfolio balance), personal loans (83.5%), furniture loans (1.3%) and special-purpose loans (0.1%). Of the portfolio, 72.4% 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 June 2017 payment date.
As of the April 2019 payment date, loans that were one- to two-months and two- to three-months delinquent represented 0.8% and 0.5% of the portfolio balance, respectively, while loans more than three months delinquent represented 1.2%. The cumulative default ratio was 1.6%.
DBRS conducted a loan-by-loan analysis of the current pool of receivables and has updated its base case PD and LGD assumptions to 7.7% and 87.4%, respectively.
CE is provided by the subordination of the respective junior obligations and the cash reserve. As of the April 2019 payment date, CE to the Class M Notes was 69.6%, which increased from 25.8% at the DBRS initial rating. The increase is the result of the amortisation following the end of the revolving period, along with the increase in the cash reserve since closing using available excess spread.
The transaction benefits from several funded reserves. As of the April 2019 payment date, the non-amortising Payment Interruption Risk Reserve Account had a balance of EUR 5.98 million. The reserve 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. The amortising cash reserve has a balance of EUR 13.67 million, which can be used to offset the principal losses of defaulted receivables. The non-amortising commingling reserve has also been funded at closing to EUR 29.88 million; this reserve 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 has provisions for a Rata Posticipata Cash Reserve, which mitigates the liquidity risk arising from flexible loans. This reserve will be 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 April 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 rating assigned to the Class M Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
Crédit Agricole Corporate and Investment Bank S.A. and Natixis S.A., London branch were appointed at closing as the swap counterparties for the transaction. As the floating-rate Class A Notes have been discontinued following their full redemption, the transaction is currently in natural hedge.
The transaction structure was analysed in Intex DealMaker.
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-level 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 25 May 2018, when the ratings of the Class A1 and Class A2 Notes were confirmed at AAA (sf) and the Class M Notes were upgraded to AA (high) (sf).
The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.
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 7.7% and 87.4%, 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 M 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 M 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 M Notes would be expected to remain at AAA (sf).
Class M 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)
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 GmbH are subject to EU and US regulations only.
Lead Analyst: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 1 June 2016
DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
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
-- Rating European Consumer and Commercial Asset-Backed Securitisations
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 email@example.com.