DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of the following notes (together, the Class A Notes) issued by Quarzo S.r.l. - Series 2018 (the Issuer):
-- Class A1 Notes at AA (sf)
-- Class A2 Notes at AA (sf)
The ratings on the Class A Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in April 2035.
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The 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; and
-- The current levels of credit enhancement available to the Class A Notes to cover expected losses at AA (sf).
Quarzo S.r.l. - Series 2018 is a securitisation of unsecured Italian consumer loan receivables originated by Compass Banca S.p.A. (Compass) closed in November 2018. The portfolio contains mostly personal loans but also includes other purpose loans and loans for the purchase of new and used vehicles. The transaction had an initial six-month revolving period, which ended in June 2019.
As of the October 2019 payment date, loans that were one- to two-months and two- to three-months delinquent represented 0.76% and 0.5% of the portfolio balance, respectively, while loans more than three-months delinquent represented 0.8%. Gross cumulative defaults amounted to 0.88% of which 8.2% have been recovered so far.
DBRS Morningstar conducted a loan-by-loan review of the remaining pool of receivables and updated its base case PD and LGD assumptions to 6.1% and 79.4% from 8.0% and 78.3%, respectively, given the updated vintage data received earlier this year and following the end of the revolving period.
The subordinated tranche provides credit enhancement. As of the October 2019 payment date, credit enhancement to the Class A Notes was 19.8%, up from 17.0% at closing.
The transaction benefits from a non-amortising liquidity reserve, funded at closing using the proceeds from the issuance of the Class B Notes, which is available to cover senior expenses and interest payments on the Class A Notes. The liquidity reserve is currently at its target level of EUR 3.7 million.
Mediobanca Banca di Credito Finanziario S.p.A. acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Mediobanca Banca di Credito Finanziario S.p.A., 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.
Credit Agricole Corporate & Investment Bank acts as the swap counterparty for the transaction. DBRS Morningstar's private rating of Credit Agricole Corporate & Investment Bank is above the First Rating Threshold as described in DBRS Morningstar's "Derivative 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 ratings 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 these ratings include investor reports provided by Citibank N.A./London Branch, servicer reports provided by Mediobanca Banca di Credito Finanziario S.p.A. and loan-level data provided by the European DataWarehouse GmbH.
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 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 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.
The last rating action on this transaction took place on 6 December 2018, when DBRS Morningstar finalised its AA (sf) provisional ratings on the Class A Notes.
The lead analyst responsibilities for this transaction have been transferred to Petter Wettestad.
Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios as compared with 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 6.1% and 79.4%, 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 ratings of the Class A Notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the ratings 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 ratings of the Class A Notes would be expected to fall to A (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected ratings of AA (sf)
-- 50% increase in LGD, expected ratings of AA (sf)
-- 25% increase in PD, expected ratings of AA (sf)
-- 50% increase in PD, expected ratings of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected ratings of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected ratings of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected ratings of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected ratings 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:
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Petter Wettestad, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 22 November 2018
DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
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
-- Derivative Criteria 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.