DBRS Ratings Limited (DBRS Morningstar) upgraded the rating on the Class A Asset Backed Fixed Rate Notes (the Class A Notes) issued by Vela Consumer 2 S.r.l. (the Issuer) to AA (high) (sf) from AA (low) (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, on the payment date falling in October 2035.
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 October 2019 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at the AA (high) (sf) rating level.
The Issuer is a securitisation of unsecured consumer loan receivables granted by Banca Nazionale del Lavoro S.p.A. (BNL) to individual borrowers in Italy. BNL also acts as the servicer and the account bank for the transaction.
Delinquencies have been low since closing. As of October 2019, loans that were two to three months in arrears represented 0.2% of the outstanding portfolio balance and the 90+ delinquency ratio was 0.5%. According to the transaction documents, defaulted loans are loans with at least seven instalments due and unpaid or those which have been classified as “in sofferenza” or “inadempienze probabili” pursuant to the Bank of Italy’s supervisory regulations.
According to this definition, the cumulative default ratio is low at 1.02% and cumulative recoveries represent 3.0% of the cumulative defaulted amount, as of the October 2019 payment date. The performance of the portfolio remains within DBRS Morningstar’s expectations.
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 12.1% and 90.9%, respectively, from 12.3% and 91.0%, respectively, as a result of the reduced tenor of the remaining receivables.
As of the October 2019 payment date, credit enhancement to the Class A Notes was 43.2%, up from 29.1% a year ago. Subordination of the Class J Notes and a cash reserve provide the credit enhancement.
The transaction benefits from a cash reserve that is available to cover senior fees and the Class A Notes’ interest and principal (via the principal deficiency ledger). The cash reserve was funded at closing using part of the proceeds of the Class J Notes and has reduced to EUR 7.8 million from EUR 9.5 million, corresponding to its target level of 4% of the Class A Notes’ outstanding balance. The cash reserve began to amortise in July 2019, which was the first payment date where all the conditions for amortisation have been met. The transaction also benefits from a nonamortising interest reserve of EUR 2.0 million available to cover senior fees and interest on the Class A Notes.
The transaction is subject to set-off risk, which has been accounted for in DBRS Morningstar’s analysis. According to DBRS Morningstar, commingling risk in this transaction is adequately mitigated.
BNL acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNL, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar 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 Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
DBRS Morningstar analysed the transaction structure 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 Morningstar 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: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include loan-level data provided by European DataWarehouse GmbH and investor reports provided by Securitisation Services S.p.A.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was not supplied with 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 this rating 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.
The last rating action on this transaction took place on 4 December 2018, when DBRS Morningstar upgraded the Class A Notes to AA (low) (sf) from A (high) (sf).
The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.
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 (the Base Case):
-- DBRS Morningstar 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 for the Issuer are 12.1% and 90.9%, 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 fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to A (high) (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 fall to A (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 (low) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: Natalia Coman, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 6 December 2017
DBRS Ratings Limited
20 Fenchurch Street, 31st Floor,
London EC3M 3BY United Kingdom
Registered and incorporated under the laws of England and Wales: Company No. 7139960
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
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.