DBRS Ratings GmbH (DBRS Morningstar) assigned the following ratings to the notes issued by Alba 11 SPV S.r.l. (the Issuer or Alba 11 SPV):
-- EUR 498,700,000 Class A1 Asset-Backed Floating Rate Notes due September 2040 (the Class A1 Notes) at AAA (sf)
-- EUR 300,000,000 Class A2 Asset-Backed Floating Rate Notes due September 2040 (the Class A2 Notes) at AAA (sf)
-- EUR 143,600,000 Class B Asset-Backed Floating Rate Notes due September 2040 (the Class B Notes) at AA (low) (sf)
-- EUR 131,100,000 Class C Asset-Backed Floating Rate Notes due September 2040 (the Class C Notes) at BB (high) (sf)
The ratings of the Class A1 and Class A2 Notes address the timely payment of interest and the ultimate repayment of principal by the final legal maturity date. The ratings on the Class B and Class C Notes address the timely payment of interest and ultimate repayment of principal by the final legal maturity date, in accordance with the Issuer’s default definition provided in the transaction documents (i.e., the timely payment of interest when they become the most senior tranche). The Issuer also issued EUR 187,000,000 Class J Asset-Backed Floating Rate Notes due September 2040, which are not rated by DBRS Morningstar.
Alba 11 SPV is a cash flow securitisation collateralised by a portfolio of performing financial lease contracts to Italian retail and corporate customers. The loans were granted by Alba Leasing S.p.A. (Alba Leasing or the Originator). The securitised receivables are financial claims toward the payment of regular instalments by lessees. The receivables exclude the final optional instalments that include residual value.
The initial valuation date when the economic effect of the portfolio transfer started was 10 May 2020. As of the initial valuation date, the portfolio consisted of 14,680 lease contracts extended to 9,380 borrowers, with an aggregate par balance of EUR 1,247.83 million, of which EUR 11.38 million were in arrears for less than 30 days. The initial portfolio consisted of 20.0% vehicle leases; 56.6% equipment leases; 22.3% real estate leases; and 1.0% air, naval, and train leases.
The transaction includes a cash reserve, which will be available to cover expenses, senior fees, and interest on the Class A1 and Class A2 Notes, and interest on the Class B and Class C Notes if the relevant interest subordination event has not occurred. The target cash reserve is equal to 1.16% of the principal outstanding of the rated notes, subject to a floor of 0.5% of the original balance of the rated notes.
The Class A1, Class A2, Class B, and Class C Notes benefit from a total credit enhancement of 60.0%, 36.0%, 24.5%, and 14.0%, respectively, which is provided by the overcollateralisation of the portfolio. The Class A1 and Class A2 Notes rank pro rata and pari passu for interest payments, but before enforcement the Class A2 Notes are time-subordinated to the Class A1 Notes in terms principal payments. Post enforcement, the Class A1 and Class A2 Notes rank pro rata and pari passu also in terms of principal.
The initial portfolio exhibits a higher geographic concentration in the Italian northern regions of Lombardy, Emilia-Romagna, and Veneto, accounting for 30.6%, 13.5%, and 11.5%, respectively. The initial portfolio exhibits a low sector concentration as the top three sector exposures, according to DBRS Morningstar’s industry classifications, are Building & Development, Surface Transport, and Nonferrous Metals/Minerals, which represent 15.6%, 12.7%, and 10.0% of the outstanding portfolio balance, respectively. The portfolio has a low borrower group concentration, as the largest and top five and top 10 largest borrower groups account for 0.6%, 2.6%, and 4.6% of the outstanding portfolio balance, respectively.
Alba Leasing acts as the servicer and Securitisation Services S.p.A. acts as the backup servicer for this transaction. Agenzia Italia S.p.A. and Trebi Generalconsult S.r.l. have also been appointed sub-backup servicers. In the event the Servicer’s appointment is terminated, the Issuer revokes the appointment to the Servicer and appoint the backup servicer as substitute of the servicer.
DBRS Morningstar determined its ratings based on the principal methodology and the following considerations:
-- The transaction’s capital structure and the form and sufficiency of available credit enhancement in the form of subordination, reserve funds, and excess spread.
-- The ability of the transaction’s structure and triggers to withstand stressed cash flow assumptions in order to timely or ultimately pay interest, as the case may be, and ultimately repay the principal under the notes before the final legal maturity date according to the terms of the transaction documents.
-- Alba Leasing’s capabilities with respect to originations and underwriting.
-- Alba Leasing’s financial situation and its capabilities with respect to servicing.
-- DBRS Morningstar conducted an updated operational risk review of Alba Leasing in March 2020, and deems it an acceptable originator and servicer.
-- The credit quality of the collateral and ability of the servicer to perform collection activities on the collateral.
-- The sovereign rating of the Republic of Italy, currently rated BBB (high) with a Negative trend by DBRS Morningstar.
-- The consistency of the legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
The ratings are also based on the following analytical considerations:
-- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. DBRS Morningstar assumed an annualised PD of 2.4% for vehicles leases; 2.7% for equipment leases; 1.7% for real estate leases; and 4.9% for air, naval, and train leases. Additional adjustment were applied in the context of the current Coronavirus Disease (COVID-19) pandemic.
--The assumed weighted-average life (WAL) of the portfolio was 3.1 years.
-- The PDs and WAL were used in the DBRS Morningstar Diversity Model to generate the hurdle rate for the assigned ratings.
DBRS Morningstar analysed the transaction structure in Intex DealMaker, considering the default rates at which the rated notes did not return all specified cash flows.
INFORMATION ON COVID-19
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. For this transaction, DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.
On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
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.
For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar commentary: https://www.dbrsmorningstar.com/research/360734.
For more information on DBRS Morningstar considerations for European Structured Credit transactions and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar commentary: https://www.dbrsmorningstar.com/research/361098.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
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.
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 sources of data and information used for this rating include performance data relating to the receivables provided by the originator directly or through the arrangers, Banca IMI S.p.A., Société Générale, and Banca Akros S.p.A.
DBRS Morningstar received the following data information, split by vehicles, equipment, real estate, and air/naval/train lease contracts:
-- Static quarterly default data from Q1 2010 to Q4 2019;
-- Static quarterly recovery data from Q1 2011 to Q4 2019;-- Dynamic quarterly delinquency data from Q1 2012 to Q4 2019;
-- Dynamic quarterly prepayment data from Q1 2011 to Q4 2019;
In addition, DBRS Morningstar received loan-level characteristics, stratification data, and contractual amortisation profile as at 10 May 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.
These ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.
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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- PD Rate Used: Base Case PD of 2.4% for vehicles leases, 2.7% for equipment leases, 1.7% for real estate leases and 4.9% for air, naval and train leases. 39.6% for a AAA (sf) scenario, 33.1% for a AA (low) (sf) scenario, and 17.4% for a BB (high) (sf) scenario, a 25% and 50% increase on the applicable PD.
-- Recovery Rate Used: Base Case recovery rate of 43.0%.
-- Loss Given Default (LGD) Used: Base Case LGD of 57.0%, 73.0% for a AAA (sf) scenario, 68.2% for a AA (low) scenario, and 60.0% for a BB (high) scenario, a 25% and 50% increase on the applicable LGD.
Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and 50% increase in the expected LGD.
DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A1 Notes: AAA (sf), AAA (sf), AAA (sf), AAA (sf), AAA (sf), AA (high) (sf), AAA (sf), AAA (sf), AA (sf).
-- Class A2 Notes: AAA (sf), AA (high) (sf), AA (low) (sf), AA (high) (sf), A (high) (sf), A (low) (sf), A (high) (sf), BBB (high) (sf), BBB (low) (sf).
-- Class B Notes: AA (low) (sf), A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BB (high) (sf), BBB (high) (sf), BB (high) (sf), BB (high) (sf).
-- Class C Notes: BB (high) (sf), BB (sf), B (high) (sf), BB (sf), B (high) (sf), B (low) (sf), B (high) (sf), B (low) (sf), CCC (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: http://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: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 25 June 2020
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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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) https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating CLOs Backed by Loans to European SMEs and DBRS Morningstar SME Diversity Model 2.4 (8 July 2019), https://www.dbrsmorningstar.com/research/347780/rating-clos-backed-by-loans-to-european-smes.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019), https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019), https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.
-- 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.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
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 firstname.lastname@example.org.