DBRS Ratings GmbH (DBRS Morningstar) confirmed its A (sf) rating on the Class A Notes issued by UBI SPV Lease 2016 S.r.l. (the Issuer).
The rating addresses the timely payment of interest and ultimate payment of principal by the legal final maturity date in November 2050.
The confirmation follows an entire review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the May 2020 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (sf) rating level;
-- No early termination events have occurred so far;
-- An amendment to the transaction (the Amendment) executed on 29 June 2020.
UBI SPV Lease 2016 S.r.l. is a securitisation of commercial lease receivables granted to corporates, small businesses, and individual enterprises originated by UBI Leasing S.p.A. and serviced by Unione di Banche Italiane S.p.A. (UBI Banca). The pool comprises real estate, vehicle, and equipment lease receivables, while the residual value component of the underlying financial lease contracts is not securitised. The transaction closed in July 2016, when the special-purpose vehicle issued one senior Class of floating-rate notes and one junior class of variable return notes, namely the Class A and Class B Notes.
The transaction had an original 18-month revolving period, which was extended in April 2018 for a further 18 months, and in September 2019, for an additional 21 months. As a result of such amendments, the amortisation of the notes is currently expected to start on the payment date falling in August 2021. There are eligibility criteria, concentration limits, and performance triggers in place to mitigate any potential portfolio deterioration during the revolving period, all being met to date.
The following amendments were executed and are effective from 29 June 2020:
-- An increase in the debt service reserve amount, to 2.0% from 1.5% of the Class A Notes outstanding balance, (to EUR 42.0 million from EUR 31.5 million). The increase is expected to be funded through the regular priority of payments, next one being scheduled on 4 August 2020.
-- An increase to the maximum percentage of fixed rate receivables allowed into the portfolio during the revolving period, to 25% from 12% of the collateral portfolio outstanding principal.
-- An increase to the maximum cash that can be credited into the transaction account without triggering an early termination event of the revolving period, to EUR 500,000,000 from EUR 400,000,000.
-- A change in the individual eligibility criteria, allowing lease receivables which currently benefit from a payment suspension in accordance to primary law or Italian Banking Association (ABI) agreements to be included into the portfolio.
-- A change in the individual eligibility criteria, allowing lease receivables guaranteed by Mediocredito Centrale S.p.A. (also through the Italian “Fondo di Garanzia per le PMI”) to be included into the portfolio.
The portfolio is performing within DBRS Morningstar’s initial expectations. As of the March 2020 cut-off, loans that were two- to three-months in arrears represented 0.3% of the outstanding portfolio balance, stable from the March 2019 cut-off and the last annual review of this transaction. The 90+ delinquency ratio was 0.7%, which is slightly down from 1.0% as of the March 2019 cut-off. The gross cumulative default ratio stood at 1.3% of the initial portfolio balance (including additional portfolios), increasing from 1.0% last year. As of the May 2020 payment date, all concentration limits and performance triggers in place are satisfied.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD assumption to 20.4%, and maintained its LGD assumption at 34.0%.
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement, and includes the debt service reserve as well as any residual cash in the transaction account. As of the May 2020 payment date, credit enhancement to the Class A Notes was 32.5%, stable from last year.
The transaction benefits from an amortising debt service reserve, which is available to cover shortfalls on senior fees, expenses, and interest payments on the Class A Notes. The reserve is currently at its target level of EUR 31.5 million, or 1.5% of the Class A Notes outstanding balance, and will be increased up to 2.0% of the Class A Notes outstanding balance (or EUR 42.0 million) as a result of the Amendment.
UBI Banca and BNP Paribas Securities Services, Milan branch act as the transaction’s account bank and payment account bank (together, the Account Banks), respectively. Based on the reference rating of the account bank at BBB (high), which is one notch below DBRS Morningstar’s Long-Term Critical Obligation Rating of A (low), on the private rating of the payment account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the Account Banks 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.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
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 rating is 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. In addition, DBRS Morningstar conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio. Reported payment holidays were also considered in the cash flow analysis.
The DBRS Morningstar Sovereign group released on 16 April 2020 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.
On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus is likely to affect the DBRS Morningstar-rated ABS transactions in Europe, for more details please see https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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: https://www.dbrsmorningstar.com/research/357792.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (22 April 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 continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.
DBRS Morningstar conducted a review of the amended transaction documents including the Transfer Agreement, the Intercreditor Agreement, the Warranty and Indemnity Agreement, the Master Amendment Agreement and the Master Definition Agreement. A review of any other transaction’s legal documents was not conducted as the these 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 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:
The sources of data and information used for this rating include investor, servicer, payment reports, and additional information provided by UBI Banca as well as loan-level data provided by the European DataWarehouse GmbH.
DBRS Morningstar did not rely upon third-party due diligence 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 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 6 September 2019, when DBRS Morningstar upgraded the rating on the Class A Notes to A (sf) from A (low) (sf).
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.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 20.4% and 34.0%, 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 on the Class A Notes would be expected to fall to BBB (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected fall to BB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to fall to BB (low) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (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 U.S. regulations only.
Lead Analyst: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 July 2016
DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
-- 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
-- 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
-- Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020),
-- Rating European Structured Finance Transactions Methodology (28 February 2020),
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019),
-- Rating CLOs and CDOs of Large Corporate Credit (28 February 2020),
-- Rating CLOs Backed by Loans to European SMEs (8 July 2019),
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.