DBRS Ratings GmbH (DBRS) assigned a AA (high) (sf) rating to Class A Notes issued by Auto ABS Italian Balloon 2019-1 S.r.l. (the issuer).
The transaction represents the issuance of Class A and Class B Notes (together, the notes) backed by a pool of approximately EUR 660 million of fixed-rate receivables related to Italian balloon auto loans granted by Banca PSA Italia S.p.A. (the originator and servicer) to individual private and commercial debtors residing in Italy. The transaction envisages a two-year revolving period during which time the issuer will purchase new receivables that the originator may offer provided that certain conditions set out in the transaction documents are satisfied. DBRS does not rate the Class B Notes. The transaction benefits from a EUR 6.6 million cash reserve funded by the originator through a subordinated loan that can be used to cover shortfalls in senior expenses and interest under the Class A Notes. The Class A Notes and the receivables pay interest indexed to a fixed interest rate.
The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal maturity date.
The rating is based on DBRS’s review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- The seller, originator and servicer’s capabilities with respect to originations, underwriting, servicing and financial strength.
-- The appointment upon closing of a backup servicer facilitator.
-- DBRS conducted an operational risk review on Banca PSA Italia S.p.A.’s premises and deems it to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral and historical and projected performance of the seller’s portfolio.
-- The sovereign rating of the Republic of Italy, currently rated BBB (high) with a Stable trend by DBRS.
-- The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, the presence of legal opinions that address the true sale of the assets to the issuer and non-consolidation of the issuer with the seller.
The transaction was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.
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 is based on the worst-case replenishment criteria set forth in the transaction legal documents.
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: https://www.dbrs.com/research/333487/rating-sovereign-governments.
The sources of data and information used for the rating includes data sourced from Banca PSA Italia S.p.A. and provided through the transaction arranger, Société Générale, S.A.
DBRS was also provided with detailed stratification tables related to the final portfolio as at 8 July 2019.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
DBRS was supplied with one or more 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 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.
This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the base case):
-- Expected Default Rate Used: Base probability of default (PD) of 2.14 % (excluding sovereign stress), a 25% and 50% increase on the applicable PD.
-- Recovery Rate Used: Expected recovery rate of 23.5%.
-- Loss Given Default (LGD) Used: Expected LGD of 76.5%, a 25% and 50% increase in the applicable LGD.
DBRS concludes that:
-- A hypothetical increase of the base case PD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the base case PD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (low) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to 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: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Ronja Dahmen, Assistant Vice President, Global Structured Finance
Rating Committee Chair: Tim O’Neil, Managing Director, Head of Canadian Structured Finance
Initial Rating Date: 18 July 2019
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.