DBRS Ratings GmbH (DBRS) upgraded its rating on the Class A notes issued by Diaz Securitisation S.r.l. (the Issuer) to AA (sf) from A (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 in December 2034.
The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the June 2019 payment date;
-- 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.
The Issuer is an Italian securitisation of salary assignment loans, pension assignment and payment delegation loans established in April 2017 and sponsored by Banca Progetto S.p.A., with an initial portfolio balance of EUR 171.5 million. The transaction’s initial portfolio consisted of loans transferred to the Issuer from Arianna SPV S.r.l. (the Arianna portfolio), a DBRS-rated securitisation established in 2013 and called in April 2017. The Arianna portfolio was originated by Consum.it S.p.A. directly and through specialised dealers, who also act as sub-servicers for their respective loans, with Zenith Service S.p.A. (Zenith) acting as servicer.
The transaction had a 12-month revolving period which ended in October 2018, during which the Issuer purchased additional receivables originated and sub-serviced by Sigla S.r.l. (Sigla) totalling EUR 50.3 million (the Sigla Portfolio). In June 2019, the Sigla Portfolio was sold by the Issuer for consideration of EUR 46.2 million, resulting in a reduction of the portfolio balance to EUR 40.7 million and the accelerated amortisation of the Class A notes.
As of the June 2019 payment date, loans delinquent by one month represented 1.6% of the outstanding portfolio balance, loans delinquent by two months represented 0.7%, while loans delinquent by three months or more represented 1.7%. The Cumulative Net Default Ratio was 0.3%.
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 8.4% and 59.2%, respectively.
CE to the Class A notes is provided by the subordination of the Class B notes. As of the June 2019 payment date, CE to the Class A increased to 52.2%, up from 17.8% in June 2018 as a result of amortisation following the end of the revolving period in October 2018 and the sale of the Sigla Portfolio in June 2019.
The transaction benefits from a cash reserve account, currently funded to its target balance of EUR 0.5 million, which is available to cover senior expenses and missed interest payments on the Class A notes. The required level of the cash reserve account is set at 1.2% of the outstanding portfolio balance.
Additionally, a prepayment reserve is available to cover prepayment losses related to capitalised fees that may be retained upon prepayment, with a current balance of EUR 0.6 million. The prepayment reserve target amount is equal to 1.5% of the outstanding portfolio balance.
BNP Paribas Securities Services SCA, Milan Branch (BNP Milan) acts as the account bank for the transaction. Based on the DBRS private rating of BNP 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 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 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.
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 Global Methodology for Rating Sovereign Governments at: http://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include investor reports provided by Securitisation Services S.p.A. (the Calculation Agent), 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 not 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 28 September 2018, when DBRS confirmed the rating of the Class A notes at A (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 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 are 8.4% and 59.2%, respectively. At the AA (sf) rating level, the corresponding PD and LGD are 31.3% and 76.8%, 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 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 remain at AA (sf), ceteris paribus.
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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 September 2017
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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
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- 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 email@example.com.