DBRS Morningstar Upgrades and Discontinues Ratings on Sunrise S.r.l. - Series 2017-1

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Sunrise S.r.l. - Series 2017-1 (the Issuer):

-- Class A1 Notes discontinued
-- Class A2 Notes discontinued
-- Class M Notes upgraded to AAA (sf) from AA (high) (sf)

The discontinuations reflect the payments in full of the Class A1 Notes and Class A2 Notes on the 27 January 2020 payment date. The outstanding balances of the Class A1 and Class A2 Notes prior to their full redemptions were EUR 10,778,430.00 and EUR 37,309.95, respectively. Both were rated AAA (sf).

The upgrade of the rating on the Class M Notes follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class M Notes to cover the expected losses at the AAA (sf) rating level.

The rating on the Class M Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in April 2041.

The Issuer is a securitisation of unsecured Italian consumer loans granted to retail clients by Agos Ducato S.p.A. (Agos), which is also the servicer of the portfolio. The EUR 521.0 million portfolio, as of the January 2020 payment date, consisted of auto loans (16.1% of the outstanding portfolio balance), personal loans (82.1%), furniture loans (1.6%), and special-purpose loans (0.2%). The majority of the portfolio (73.7%) consists of flexible loans that allow the borrower to skip one monthly instalment per year (up to a maximum of five times during the life of the loan) and modify the amount of the monthly instalments. The transaction included a 12-month revolving period, which matured on the March 2018 payment date.

PORTFOLIO PERFORMANCE
As of the January 2020 payment date, one-to two-month and two-to three-month delinquencies represented 0.8% and 0.6% of the portfolio balance, respectively, while loans more than three months delinquent represented 1.3%. Gross cumulative defaults amounted to 1.9% of the aggregate initial collateral balance, with cumulative recoveries of 5.8% to date.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 7.6% and 87.5%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior notes and the cash reserve provide credit enhancement to the Class M Notes. As of the January 2020 payment date, credit enhancement to the Class M Notes increased to 61.8% from 38.5% 12 months ago.

The transaction benefits from credit support through an amortising cash reserve available to cover senior expenses, interest, and principal payments due on the Class M Notes. The reserve has a target balance equal to 3% of the outstanding performing collateral balance, and as of the January 2020 payment date, was at its target of EUR 15.6 million. Additionally, a nonamortising payment interruption risk reserve provides liquidity support, is available to cover senior expenses and interest payments on the Class M Notes, and is currently at its target of EUR 6.5 million. The transaction also benefits from an amortising commingling reserve, with a current balance of EUR 9.7 million, which may become available to the Issuer upon insolvency of the servicer or any of the servicer’s account banks.

The transaction structure additionally provisions for a Rata Posticipata cash reserve, which mitigates the liquidity risk arising from flexible loans. This reserve will only be funded if, for two consecutive payment dates, the outstanding balance of the flexible loans in relation to which the debtors have exercised the contractual right to postpone the payments is higher than 5% of the outstanding balance of all flexible loans. As of the January 2020 payment date, this condition has not been breached.

Crédit Agricole Corporate and Investment Bank S.A., Milan Branch (CACIB-Milan) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of CACIB-Milan, 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 M Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Crédit Agricole Corporate and Investment Bank S.A. (CACIB) acts as the swap counterparty for the transaction. DBRS Morningstar's private rating of CACIB 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.

Notes:
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 CACIB-Milan, servicer reports provided by Agos, loan-level data provided by the European DataWarehouse GmbH, and updated performance data available from the originator.

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 25 February 2019, when DBRS Morningstar confirmed the ratings of the Class A1 and Class A2 Notes at AAA (sf), respectively, and upgraded the rating of the Class M Notes to AA (high) (sf) from AA (low) (sf).

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 7.6% and 87.5%, 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 M Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class M Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class M Notes would be expected to remain at AAA (sf).

Class M Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (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 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: 14 March 2017

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
-- 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 info@dbrs.com.