DBRS Morningstar Confirms Rating of Crediper Consumer S.r.l. Following Amendment

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (sf) rating on the Class A Notes issued by Crediper Consumer S.r.l. (the Issuer) following an amendment to the transaction.

The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in November 2052.

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 August 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 AA (sf) rating level;
-- No early termination events have occurred so far;
-- An amendment to the transaction executed on 5 August 2020 (the Amendment);
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Crediper Consumer S.r.l. is a securitisation of consumer loan receivables originated by BCC CreditoConsumo S.p.A. (CreCo), a finance company within the Iccrea banking group, and granted to private individuals in Italy. The transaction follows the standard structure under the Italian securitisation law and closed in December 2018, when the SPV issued one senior class of fixed-rate notes (i.e., the Class A Notes) and one junior class of fixed-rate and variable return notes (i.e., the Class B Notes). CreCo – appointed as servicer for the transaction – is almost entirely owned by Iccrea Banca S.p.A., which holds 96.0% of its shares, while Cassa Centrale Raiffeisen dell’Alto Adige S.p.A. holds the remaining 4.0%. The transaction is in its revolving period, that prior to the Amendment was scheduled to terminate on the November 2020 payment date (excluded).

AMENDMENTS

The following amendments were executed and are effective from 5 August 2020:

-- A 24-month extension of the revolving period, until the August 2022 payment date. The Notes will start to amortise on the November 2022 payment date.
-- An increase in the limit for partial repurchase of receivables to EUR 130 million from EUR 60 million.
-- A change in the individual eligibility criteria in order to allow the transfer of receivables, which currently benefit from a payment suspension granted as a result of the coronavirus pandemic.
-- An increase in the limit for contractual payment suspensions to 5.0% from 4.0%. The limit shall not apply to coronavirus-related payment suspensions.
-- An increase in the limit for amortisation plan renegotiations to 5.0% from 2.0% of the initial portfolio balance.

PORTFOLIO PERFORMANCE

The portfolio is performing within DBRS Morningstar’s initial expectations. As of the June 2020 cut-off, loans that were two- to three-months in arrears represented 0.4% of the outstanding portfolio balance, stable from the September 2019 cut-off. The 90+ delinquency ratio was 0.7%, slightly up from the September 2019 cut-off. The gross cumulative default ratio stood at 0.6% of the initial portfolio balance (including subsequent portfolios), up from 0.2% in September 2019.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS

DBRS Morningstar received updated vintage performance data and recalibrated its gross default and recovery rate base case assumptions, noting an overall improvement in the historical data performance. The base case PD assumption was updated to 5.7%, while the LGD assumption was maintained at 72.5%.

CREDIT ENHANCEMENT

Overcollateralisation of the outstanding collateral portfolio provides credit enhancement. As of the August 2020 payment date, credit enhancement to the Class A Notes was 19.1%, slightly down from 21.3% as of the November 2019 payment date because of a lower outstanding portfolio balance.

The transaction structure benefits from two reserves. The cash reserve is available to cover shortfalls on senior fees, expenses, interest on the Class A Notes, top up the payment interruption risk reserve, and to credit the defaulted account. The reserve, which is currently at its target level of EUR 19.5 million, will start to amortise after the end of the revolving period with a target of 3.0% of the portfolio outstanding balance; it is floored at EUR 3.3 million.

The non-amortising payment interruption risk reserve is available to cover shortfalls on senior fees, expenses, and interest on the Class A Notes and is currently at its target level of EUR 3,250,000.

BNP Paribas Securities Services, Milan branch acts as the account bank for the transaction. Based on the private rating of BNP Paribas Securities Services, Milan branch, 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 bank to be consistent with the rating assigned to the 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 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 applied a haircut to its base case recovery rate and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand potential payment holidays in the portfolio. As of 6 July 2020, around 7.3% of the current portfolio balance benefitted from a payment moratorium.

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 last updated on 22 July 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-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.

ESG CONSIDERATIONS

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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the rating are the “Master European Structured Finance Surveillance Methodology” (22 April 2020) and the “Rating European Consumer and Commercial Asset-Backed Securitisations” (13 January 2020).

DBRS Morningstar has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

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 Master Transfer Agreement, the Intercreditor Agreement, the Warranty and Indemnity Agreement, and the Servicing Amendment. 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: https://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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at:
https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include payment and investor reports provided Accounting Partners S.p.A., servicer reports and additional information provided by CreCo, and loan-level data provided by the European DataWarehouse GmbH. In the context of the Amendment, DBRS Morningstar was also provided with updated historical performance data as follows:

-- Quarterly static default and net losses data from Q2 2011 to Q1 2020;
-- Quarterly static recovery data from Q2 2012 to Q1 2020;
-- Quarterly static prepayment data from Q2 2012 to Q1 2020; and
-- Quarterly dynamic arrears and prepayment data from Q2 2011 to Q1 2020.

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 not 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 18 December 2019, when DBRS Morningstar confirmed the rating of the Class A Notes at AA (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 5.7% and 72.5%, 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 A Notes would be expected to fall to AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to BBB (high) (sf).

Class A Notes Risk Sensitivity:

-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 December 2018

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main – Deutschland
Tel. +49 (69) 8088 3500

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.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Master European Structured Finance Surveillance Methodology (22 April 2020)
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- 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)
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (21 July 2020)
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology

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 info@dbrsmorningstar.com.