DBRS Ratings GmbH (DBRS Morningstar) assigned ratings of AA (high) (sf) and A (high) (sf), respectively, to the Class A notes and Class B notes issued by Sunrise SPV Z90 S.r.l. (the Issuer) – as Sunrise 2020-1 transaction. DBRS Morningstar does not rate the Class M notes issued in this transaction.
The rating of the Class A notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date of 27 October 2045. The rating of the Class B notes addresses the ultimate payment of interest but the timely payment of scheduled interest when they are the senior most tranche and the ultimate repayment of principal by the legal final maturity.
DBRS Morningstar based its ratings on the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels 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 of the notes.
-- Agos Ducato S.p.A.’s (the originator) financial strength and capabilities with respect to originations, underwriting, and servicing.
-- DBRS Morningstar’s operational risk review on Agos, which is deemed to be an acceptable servicer.
-- 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 originator’s portfolio.
-- DBRS Morningstar’s sovereign rating of the Republic of Italy at BBB (high) with Negative trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.
The transaction represents the issuance of Class A notes, Class B notes, and Class M notes backed by a portfolio of approximately EUR 1.15 billion of fixed-rate receivables related to consumer and auto loans granted by the originator to private individuals residing in Italy. The originator will also service the portfolio.
The transaction includes a 18-month revolving period scheduled to end in November 2021. During the revolving period, the originator may offer additional receivables that the Issuer will purchase, provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers, insolvency of the originator, or replacement of the servicer.
The transaction allocates collections in separate interest and principal priorities of payments and benefits from an amortising EUR 5.7 million cash reserve and a non-amortising EUR 5.7 million payment interruption risk reserve, both funded through the proceeds of the Class M Notes. Both reserves can be used to cover senior costs and interests on the Class A notes and Class B notes. The cash reserve can also be used to offset defaulted receivables. Principal funds can be re-allocated to cover senior expenses and interests on the Class A notes and Class B notes.
The transaction further benefits from a non-amortising rata posticipata reserve to supplement interest amounts not made by borrowers during the payment holiday. This reserve will be funded through the transaction interest waterfalls if specific thresholds are breached. This reserve will be released when the threshold breach is cured.
At the end of revolving period, the notes will be repaid on a fully sequential basis.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
Crédit Agricole Corporate and Investment Bank (CA-CIB), Milan Branch acts as the account bank for the transaction. DBRS Morningstar has a private rating on CA-CIB, which meets DBRS Morningstar’s criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with DBRS Morningstar criteria with respect to the rating assigned to the Class A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.
On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. These scenarios were updated on 1 June 2020.
For details see the following commentaries:
https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations” (13 January 2020).
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 at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The data and information relevant for the ratings include data and information sourced by the originator and provided through the arrangers, Banca Akros S.p.A. and CA-CIB-.
DBRS Morningstar received quarterly static default data from Q1 2004 to Q4 2019, quarterly static recovery data from Q1 2001 to Q4 2019, monthly dynamic arrears and default data from June 2008 to March 2020, and static prepayment rates by annual vintages from 2003 to 2019. DBRS Morningstar also received a set of stratification tables for the loan pool as of 30 April 2020 and its related contractual amortisation profile.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
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.
These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the ratings.
-- Probability of default (PD) used: Expected PD of 7.2%
-- Loss given default (LGD) used: Expected LGD of 88%
Scenario 1: A 25% increase in the expected PD.
Scenario 2: A 50% increase in the expected PD.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected PD and a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected PD 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 PD and a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected PD and a 50% increase in the expected LGD.
DBRS Morningstar concludes that the expected ratings under the eight hypothetic scenarios are
-- Class A notes: AA (low) (sf), A (sf), AA (sf), A (high) (sf), A (low) (sf), AA (sf), A (high) (sf), A (low) (sf).
-- Class B notes: A (low) (sf), BBB (high), A (high) (sf), A (low) (sf), BBB (high), A (high) (sf), A (low) (sf), BBB (high).
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.
Lead Analyst: Anna Dingillo, Senior Analyst
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 10 June 2020
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
--Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)
--Legal Criteria for European Structured Finance Transactions (11 September 2019)
--Operational Risk Assessment for European Structured Finance Servicers (28 February 2020)
--Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
--Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
--Rating European Structured Finance Transactions Methodology (28 February 2020)
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.