DBRS Ratings GmbH (DBRS) upgraded its rating of the Class A Notes issued by UBI SPV Lease 2016 S.r.l. (the Issuer) to A (sf) from A (low) (sf).
The upgrade follows an entire review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the August 2019 payment date;
-- Updated probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool, considering the updated quarterly vintage performance data received by DBRS in the context of some amendments to the transaction (the Amendment);
-- No revolving termination events have occurred; and
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the A (sf) rating level.
The rating on the Class A Notes addresses timely payment of interest and ultimate payment of principal by the legal final maturity date.
UBI SPV Lease 2016 S.r.l. is a securitisation of lease receivables granted to corporates, small businesses and individual enterprises originated by UBI Leasing S.p.A. (UBI Leasing) and serviced by Unione di Banche Italiane S.p.A. (UBI Banca). The pool comprises real estate, vehicle and equipment lease receivables. The transaction closed in July 2016.
The following amendments were executed and are effective from 4 September 2019:
-- An extension of the revolving period for additional 21 months until the May 2021 payment date(included);
-- A minimum amount of 95% of receivables in the portfolio can now pay through SDD SEPA, whereas, prior to the amendment, only receivables paying through SDD SEPA were allowed into the portfolio;
-- An increase to the single contract maximum transferrable amount to EUR 15 million from EUR 5 million; and
-- An increase to the maximum percentage of instrumental leases allowed into the portfolio to 35% from 30%.
The transaction had an original 18-month revolving period, which was extended in April 2018 for a further 18 months, until August 2019 (included), with the amortisation of the notes starting on the payment date falling in November 2019. Following the Amendment, the transaction’s revolving period was extended for 21 additional months. Therefore, the amortisation of the notes is now expected to start on the payment date falling in August 2021, compared with November 2019 prior to the Amendment, to the extent that certain conditions are not breached before. There are eligibility criteria, concentration limits and performance triggers in place to mitigate any potential portfolio deterioration during the revolving period, all being met to date.
The portfolio is performing within DBRS’s initial expectations. As of the August 2019 payment date, the 90+ delinquency ratio arrears stood at 0.6% of the collateral portfolio balance. The gross cumulative default ratio is currently at 1.1% of the aggregate original portfolio balance, including additional portfolios. As of the August 2019 payment date, the concentration limits and performance triggers in place have been satisfied.
DBRS received updated vintage performance data, split according to lease type. DBRS then recalibrated its base case assumptions on gross default and recovery rate for each lease type and noted an overall improvement in the performance. The updated base case PD and LGD assumptions, based on the worst-case portfolio composition, are 19.6% and 34.0%, respectively. At the A (sf) rating level, the PD and LGD assumptions are 44.3% and 66.4%, respectively.
As of August 2019, the CE available to the Class A Notes was stable at 32.6%, as the transaction is still in its revolving period. CE is provided by collateralisation of the outstanding collateral portfolio and includes the Debt Reserve Amount as well as any residual cash.
The Debt Reserve Amount is currently at its target level of EUR 31.5 million. It covers senior fees and interest on the Class A Notes and will start to amortise at the end of the revolving period, following the amortisation of the Class A Notes. It is sized at 1.50% of the outstanding balance of the Class A Notes.
Unione di Banche Italiane SpA (UBI Banca) and BNP Paribas Securities Services, Milan branch respectively act as the transaction’s Account Bank and Payment Account Bank. Based on the Account Bank reference rating of UBI Banca at BBB (high), one notch below the DBRS Long-Term Critical Obligations Rating of A (low), on the private rating of the Payment Account Bank, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risks arising from the exposure to the Account Bank and the Payment 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.
The transaction structure was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodologies applicable to the rating are the “Master European Structured Finance Surveillance Methodology” and the “Rating European Consumer and Commercial Asset-Backed Securitisations”.
DBRS has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.
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 conducted a review of the amended transaction documents including the Transfer Agreement, the Intercreditor Agreement, the Servicing Agreement, the Warranty and Indemnity Agreement, and the Master Definition Agreement. A review of any other transaction’s legal documents was not conducted as the these 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.
The sources of data and information used for this rating include servicer, payment, investors reports provided by UBI Banca S.p.A. and loan-by-loan data provided by the European DataWarehouse GmbH.
In the context of the Amendment, DBRS was also provided with updated historical performance data based on the “sofferenza” definition of default and also on the standard 180 days past due definition (including “sofferenza”) used by DBRS.
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 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 5 April 2019, when DBRS confirmed the rating of the Class A Notes at A (low) (sf).
The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.
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”):
-- 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 receivables for the Issuer are 19.6% and 34.0%, 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 be downgraded to BBB (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to be downgraded to BBB (low) (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 be downgraded to BB (low) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below BB (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: Daniele Canestrari, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 July 2016
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Interest Rate Stresses for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
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.