DBRS Ratings GmbH (DBRS) upgraded the ratings on the following notes issued by Towers CQ S.r.l. (the Issuer):
-- Class A Asset Backed Floating Rate Notes (Class A Notes) upgraded to AA (sf) from AA (low) (sf)
-- Class B Asset Backed Floating Rate Notes (Class B Notes) upgraded to AA (low) (sf) from A (sf)
The ratings on the Class A Notes and Class B Notes (together, the Rated Notes) address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in December 2033.
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.
Tower CQ S.r.l. is a securitisation of Italian salary assignment, pension assignment and payment delegation loans originated by Accedo S.p.A., a wholly-owned subsidiary of Intesa Sanpaolo SpA (Intesa; Long-Term Issuer Rating of BBB (high) with a Stable trend by DBRS). Zenith Service S.p.A. (Zenith) acts as the servicer. The transaction closed in June 2016 and its structure originally consisted of three tranches of notes (the Rated Notes and Class C Notes) with an aggregated balance of EUR 1,471.1 million. In March 2018, the Issuer redeemed the Class C Notes and issued new Class M Notes and Class J Notes in the same amount instead.
As of the March 2019 payment date, loans delinquent by one, two and three months represented 4.4%, 2.5% and 0.7% of the outstanding portfolio balance, respectively, while delinquencies greater than three months amounted to 0.8%. Gross cumulative defaults were 3.5% of the original portfolio balance, with cumulative recoveries of 56.2% to date.
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 8.7% and 53.3%, respectively.
CE is provided by the subordination of the respective junior obligations and the cash reserve. As of the March 2019 payment date, the Class A Notes’ CE was 50.1% and the Class B Notes’ CE was 29.2%, up from 16.3% and 10.5% at closing, respectively.
A cash reserve account, currently funded with EUR 11.3 million, is available to cover senior expenses and interest payments on the Rated Notes. The required level of the cash reserve is set at 3.0% of the outstanding Rated Notes’ balance, subject to a EUR 10.1 million floor.
Additionally, a prepayment reserve will be funded if Intesa is downgraded below BBB. This account will be available to cover prepayment losses related to capitalised fees which may be retained upon prepayment, and its target amount will be equal to 1.5% of the outstanding portfolio balance.
Citibank N.A., Milan branch (Citibank Milan) is the Italian Account Bank for the transaction and Citibank N.A., London branch (Citibank London) is the English Account Bank. Based on the respective DBRS private ratings of Citibank Milan and Citibank London, 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 banks to be consistent with the ratings assigned to the Rated Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
The Issuer entered into an interest rate cap agreement with J.P. Morgan Securities plc (JP Morgan) and Citibank London to mitigate the interest rate mismatch between the Rated Notes, indexed to three-month Euribor, and the fixed interest rate payments on the receivables. The respective DBRS private ratings of JP Morgan and Citibank London are 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 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 Citibank London, servicer reports provided by Zenith and loan-level data provided by the European DataWarehouse GmbH and Zenith.
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 29 June 2018, when DBRS upgraded the ratings of the Class A Notes to AA (low) (sf) and Class B Notes to A (sf), respectively.
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 remaining collateral pool are 8.7% and 53.3%, 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 AA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to A (high) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
Class B 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 A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (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 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: 2 June 2016
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Geschäftsführer: Detlef Scholz
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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
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria 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 email@example.com.