DBRS Ratings Limited (DBRS) confirmed the rating on the Class A Notes issued by Indigo Lease S.r.l. (the Issuer) at AA (sf). The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The rating action follows an annual review of the transaction and is based on the following analytical considerations:
-- A structural amendment to the transaction executed on 5 June 2019.
-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Updated probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the AA (sf) rating level.
-- No revolving termination events have occurred.
Indigo Lease S.r.l. is a securitisation of lease receivables related to financial lease contracts to corporations, small businesses and individuals with registered offices in Italy, granted by Banca IFIS S.p.A. (Banca IFIS) and IFIS Leasing S.p.A. (formerly GE Capital Servizi Finanziari S.p.A.), which was merged into Banca IFIS in May 2018. The portfolio is serviced by Banca IFIS, with Securitisation Services S.p.A. acting as the backup servicer.
-- The extension of the revolving period by an additional two years to July 2021. DBRS has stressed the portfolio in accordance with the eligibility requirements specified in the transaction documentation in order to assess the worst case that the portfolio characteristics can migrate to.
-- Reduction of the minimum rate of interest payable on fixed-rate lease contracts to 4.1% from 5.0%.
-- Reduction of the minimum margin payable on floating-rate lease contracts to 4.1% from 5.5%.
-- Reduction of the Common Equity Tier 1 requirements for Banca IFIS set out in the definition of the Cash Trapping Condition (which accelerates the repayment of the Class A Notes if breached).
As of the end of March 2019, leases between two and three months in arrears represented 0.3% of the outstanding portfolio balance, up from 0.1% in March 2018. As of March 2019, the 90+ delinquency ratio was 0.4%, up from 0.2% in April 2018, and the cumulative default ratio (including contracts repurchased from the Issuer) was 1.2%.
DBRS adjusted its base case PD and LGD assumptions on the collateral pool to 9.4% and 79.8% from 10.2% and 78.5%, respectively. The decrease in PD and increase in LGD were driven by a reassessment of the default and recovery vintage data provided by FISG S.r.l. in its capacity as arranger.
As of the April 2019 payment date, CE to the Class A Notes was 31.0%, stable since the transaction restructure in July 2017 because of the addition of a revolving period. CE to the Class A Notes consists of subordination of the Class B Notes.
The transaction benefits from a Reserve Fund, currently at its target level of EUR 5.7 million and available to cover senior expenses and interest on the Class A Notes.
BNP Paribas Securities Services, Milan Branch acts as the account bank for the transaction. Based on the DBRS private rating of BNP Paribas Securities Services, Milan Branch, 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 A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
Citibank N.A., London Branch (Citibank) acts as the cap counterparty for the transaction. DBRS's private rating of Citibank is above the First Rating Threshold as described in DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.
The transaction structure was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating 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.
An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.
DBRS has conducted a review of the transaction legal documents provided in the context of the aforementioned amendment. The other transaction legal documents have remained unchanged since the most recent rating action and as such, a review has not been conducted.
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 this rating include portfolio and performance data provided by FISG S.r.l., investor reports provided by Securitisation Services S.p.A. and loan-level data provided by 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 purpose of providing this rating 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 20 July 2018, when DBRS confirmed the rating of the Class A Notes at AA (sf).
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 rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (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 9.4% and 79.8%, 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 fall to A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to A (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 fall to BBB (high) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
For further information on DBRS historical 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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 December 2016
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.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Rating CLOs and CDOs of Large Corporate Credit
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
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.