DBRS Ratings GmbH (DBRS Morningstar) assigned a rating of A (high) (sf) to the Class A notes issued by Clara Sec S.r.l. (the Issuer). DBRS Morningstar does not rate the Class B 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 October 2044.
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.
--Intesa Sanpaolo S.p.A.’s (ISP, the originator) financial strength and capabilities with respect to originations, underwriting, and servicing.
-- DBRS Morningstar’s operational risk review on Intesa Sanpaolo S.p.A, 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 and Class B notes backed by a portfolio of approximately EUR 7.17 billion of fixed-rate and floating-rate receivables related to consumer loans granted by the originator to private individuals residing in Italy. The originator will also service the portfolio.
Since the issue date, the transaction includes a 31-month revolving period scheduled to end in January 2023. The transaction includes a 33-month revolving period scheduled to end in January 2023. 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 on a combined interest and principal priority of payments and benefits from an amortising EUR 127 million cash reserve funded on the issue date through a subordinated loan provided by ISP. The reserve can be used to cover senior costs and interest on the Class A notes.
At the end of revolving period, the notes will be repaid on a fully sequential basis. The Class A notes pay interest indexed to three-month Euribor whereas most of the loans in the portfolio pay a fixed interest rate and the remaining loans pay interest indexed to one-month Euribor. The transaction is thus exposed to interest rate risk and basis risk arising from the mismatch between the Issuer’s liabilities and the portfolio partially mitigated by the cap on the Class A notes coupon.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
ISP acts as the account bank for the transaction. Based on the DBRS Morningstar Senior Long-Term debt of ISP at BBB (high), ISP Long-Term Critical Obligations Rating (COR) at “A”, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to ISP 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.
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 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 rating 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 rating include data and information sourced by the originator and provided through the arrangers, Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.
DBRS Morningstar received quarterly static default data from Q1 2013 to Q1 2020, yearly static recovery data from 2000 to 2018, quarterly dynamic arrears data from Q1 2013 to Q1 2020, and static prepayment rates by quarterly vintages from Q1 2013 to Q1 2020. DBRS Morningstar also received a set of stratification tables for the first initial portfolio as of 24 April 2020 and for the second initial portfolio as of 15 May 2020 and the related contractual amortisation profile. Moreover, DBRS Morningstar received set-off exposure data as of 31 October 2019 and 30 April 2020.
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 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.
This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating 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 5%
-- Loss given default (LGD) used: Expected LGD of 85%
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: A (low) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), and BBB (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: 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: Christian Aufsatz, Managing Director
Initial Rating Date: 23 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.