DBRS Ratings GmbH (DBRS) upgraded to AA (sf) from AA (low) (sf) its rating on the Series A Notes issued by Quarzo S.r.l. 2016 (the Issuer).
The rating on the Series A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in November 2032.
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 November 2019 payment date.
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining collateral portfolio.
-- Current available credit enhancement to the Series A Notes to cover the expected losses at the AA (sf) rating level.
The Issuer is a securitisation of unsecured Italian consumer loan receivables originated and serviced by Compass Banca S.p.A. (Compass). 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 42-month revolving period which ended in August 2019.
As of the November 2019 payment date, loans that were one to two months and two to three months delinquent represented 1.1% and 0.6% of the portfolio balance, respectively, while loans more than three months delinquent represented 1.0%. Gross cumulative defaults amounted to 2.5% of the aggregate original balance, of which 50.7% has been recovered so far.
Following the end of the revolving period, DBRS Morningstar conducted a loan-by-loan analysis of the current pool of receivables and has updated its base case PD and LGD assumptions to 6.6% and 79.1%, respectively.
The subordinated Series B Notes provide credit enhancement. As of the November 2019 payment date, credit enhancement to the Series A Notes was 24.9%, up from 20.0%, one year ago. The increase in credit enhancement follows the start of the amortisation of the Series A Notes on the November 2019 payment date, following the end of the revolving period.
The transactions benefit from a nonamortising liquidity reserve, funded at closing with part of the proceeds from the issuance of the Series B Notes, which is available to cover senior fees and the interest due on the Series A Notes. The liquidity reserve is currently at its target of EUR 12.0 million.
Mediobanca Banca di Credito Finanziario S.p.A. (Mediobanca) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Mediobanca, 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 Series 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 investor reports provided by Deutsche Bank 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 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 purpose 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 February 2019, when DBRS Morningstar upgraded the rating of the Series A Notes to AA (low) (sf).
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 6.6% and 79.1%, 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 Series A Notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Series A Notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A Notes would be expected to fall to A (high) (sf).
Series 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 A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (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, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 25 February 2016
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Geschäftsführer: Detlef Scholz
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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 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.