DBRS Ratings Limited (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by Brignole CQ 2019-1 S.r.l. (the Issuer):
-- Class A Notes at AA (low) (sf)
-- Class B Notes at A (high) (sf)
-- Class C Notes at A (sf)
-- Class D Notes at A (low) (sf)
-- Class E Notes at BB (low) (sf)
The transaction represents the issuance of Class A, Class B, Class C, Class D and Class E floating-rate notes (together, the Rated Notes) along with Class X and Class R notes (together with the Rated Notes, the Notes) backed by a pool of approximately EUR 172 million of fixed-rate receivables related to Italian salary- and pension-assignment loans as well as payment delegation loans granted by Creditis Servizi Finanziari S.p.A. (the originator and servicer) to individuals residing in Italy.
The transaction includes a six-month revolving period during which time the originator may offer additional receivables that the Issuer will purchase provided that certain conditions set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events, including performance triggers, occur. At the end of the revolving period, the Notes will amortise on a sequential basis. The transaction benefits from a EUR 1.7 million cash reserve funded with part of the proceeds of subscription of the Class X notes, which can be used to cover shortfalls in senior expenses, interest under the Class A, Class B, Class C and Class D notes and to offset defaults, thus providing credit enhancement. The cash reserve does not cover Class E interest and reduces to zero being released to the transaction revenues when Class D is fully amortised. The Rated Notes (including the Class E Notes) pay interest of one-month Euribor plus a margin, and the interest rate risk arising from the mismatch between the floating-rate notes and the fixed-rate collateral is hedged through an interest rate cap with an eligible counterparty with a fixed amortisation schedule based on the initial portfolio assuming a six-month revolving period and a 6% constant prepayment rate.
DBRS Morningstar does not rate the Class X or the Class R notes.
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 ratings on the Class B, Class C and Class D Notes address the ultimate payment of interest and ultimate repayment of principal by the legal maturity date while junior to other outstanding classes of notes, but the timely payment of interest when they are the senior-most tranche. The rating of the Class E Notes addresses the ultimate payment of interest and principal by the final maturity date.
The ratings are based on DBRS Morningstar’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 Morningstar’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.
-- DBRS Morningstar conducted an operational risk review on Creditis Servizi Finanziari S.p.A.’s premises and deems it to be an acceptable servicer.
-- The appointment upon closing of a backup servicer and capabilities with respect to servicing.
-- 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 Morningstar.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.
The transaction was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.
DBRS Morningstar 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 “Global Methodology for Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for the ratings include data sourced from Creditis Servizi Finanziari S.p.A and provided through the transaction arranger, Citigroup Global Markets Limited:
-- Monthly dynamic delinquency data from April 2010 to April 2019.
-- Monthly dynamic prepayment data from November 2010 to April 2019.
-- Quarterly static prepayment data from Q1 2010 to Q2 2019.
-- Quarterly static default data from Q2 2010 to Q2 2019.
-- Quarterly static recovery data from Q3 2010 to Q2 2019.
DBRS Morningstar was also provided with detailed stratification tables as at 4 September 2019.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
DBRS Morningstar was supplied with one or more third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.
This is the first rating action since the Initial Rating Date.
Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating:
-- Probability of Default (PD) used: Expected PD of 8.7%, 39% for an AA (low) (sf) scenario, 24% for an A (high) (sf) scenario, 16% for an “A” (sf) scenario, 13% for an A (low) (sf) scenario, 8.9% for an BB (low) (sf) scenario, a 25% and 50% increase on the applicable PD.
-- Recovery Rate used: Expected Recovery rate of 59%.
-- Loss Given Default (LGD) used: Expected LGD of 41%, 64% for an AA (low) (sf) scenario, 63% for an A (high) (sf) scenario, 52% for an “A” (sf) scenario, 46% for an A (low) (sf) scenario, 42% for an BB (low) (sf) scenario, a 25% and 50% increase in the applicable LGD.
Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase in the expected LGD.
DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are
-- Class A Notes: A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (sf), A (high) (sf), A (sf), A (sf).
-- Class B Notes: A (sf), A (sf), A (sf), A (sf), A (sf), A (sf), A (sf), A (low) (sf).
-- Class C Notes: A (low) (sf), A (low) (sf), A (low) (sf), BBB (high) (sf), BBB (sf), A (low) (sf), BBB (low) (sf), BB (sf).
-- Class D Notes: BBB (high) (sf), BB (high) (sf), BBB (high) (sf), BB (high) (sf), B (sf), BB (high) (sf), B (sf), below B (sf).
-- Class E Notes: below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf).
For further information on DBRS Morningstar 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 Limited are subject to EU and US regulations only.
Lead Analyst: Paolo Conti, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 24 September 2019
DBRS Ratings Limited
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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
-- Derivative 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 Morningstar 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.