DBRS Morningstar Assigns Rating to Multi Lease AS S.r.l. (Multilease 4)Consumer/Commercial Leases
DBRS Ratings GmbH (DBRS Morningstar) assigned a rating of A (high) (sf) to the Class A Asset Backed Floating Rate Notes due February 2047 (Class A Notes) issued by Multi Lease AS S.r.l. under the Series 4 (the Issuer or Multilease 4).
The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the final legal maturity date. The Issuer also issued EUR 475,045,000 Class B Asset Backed Fixed Rate Notes due February 2047, which DBRS Morningstar does not rate.
Multilease 4 is a cash flow securitisation collateralised by a portfolio of performing financial lease contracts to Italian corporate and individual companies, professionals, and individuals. The loans were granted by Sardaleasing S.p.A. (Sardaleasing 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 31 May 2021. As of the initial valuation date, the portfolio consisted of 8,161 lease contracts extended to 5,386 borrowers, with an aggregate par balance of EUR 1.80 billion. The initial portfolio consisted of 58.8% real estate leases, 25.5% equipment leases, 7.8% nautical leases, 5.5% vehicle leases, and 2.4% energy leases.
The transaction includes a cash reserve, which will be available to cover expenses, senior fees, and interest on the Class A Notes, and any release amount can be used for the repayment of principal on the Class A Notes. The target cash reserve is equal to 0.75% of the outstanding principal of the portfolio as of the first day of the preceding collection period, subject to a floor of 50.0% of its initial balance.
The Class A Notes benefit from a total credit enhancement of 26.5%, which is provided by the overcollateralisation of the portfolio.
The initial portfolio exhibits a higher geographic concentration in the Italian regions of Emilia-Romagna, Lombardy, and Sardinia, accounting for 41.0%, 14.0%, and 13.1%, respectively. The initial portfolio exhibits a moderate sector concentration as the top three sector exposures, according to DBRS Morningstar’s industry classifications, are Building & Development, Food products, and Business equipment & services, which represent 33.4%, 14.7%, and 5.5% of the outstanding portfolio balance, respectively. The portfolio has a moderate borrower group concentration, as the largest, top five, and top 10 largest borrower groups account for 1.2%, 4.8%, and 7.8% of the outstanding portfolio balance, respectively.
Sardaleasing acts as the servicer and BPER Banca S.p.A. acts as the backup servicer for this transaction. Zenith Service S.p.A. has also been appointed master servicer and second backup servicer. In the event that the Servicer’s appointment is terminated, the Issuer revokes the appointment to the Servicer and appoints the backup servicer as substitute of the servicer.
DBRS Morningstar determined its rating 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.
-- Sardaleasing’s capabilities with respect to originations and underwriting.
-- Sardaleasing’s financial situation and its capabilities with respect to servicing.
-- DBRS Morningstar conducted an updated operational risk review of Sardaleasing in May 2021, 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 rating is 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 2.9% for real estate leases; 1.8% for equipment leases; 10.1% for nautical leases; 2.1% for vehicles leases; and 10.1% for energy 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 4.1 years.
-- The PDs and WAL were used in the DBRS Morningstar Diversity Model to generate the hurdle rate for the assigned rating.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
INFORMATION ON COVID-19
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to 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.
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 18 June 2021. For details see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).
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.
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
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/381451/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include the Originator directly or through the arranger, Zenith Service S.p.A.
DBRS Morningstar received the following data and information, split by product type (real estate, equipment, nautical, auto and energy):
-- Static quarterly default data from Q3 2005 to Q4 2020,
-- Static quarterly recovery data from Q3 2005 to Q4 2020,
-- Dynamic quarterly delinquency and prepayment data from Q3 2005 to Q4 2020.
DBRS Morningstar was also provided with detailed loan-by-loan characteristics and stratification tables of the outstanding portfolio as at 31 May 2021 and related amortisation schedule.
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.
Sensitivity Analysis: 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):
-- Probability of default (PD) used: Expected PD of 37.2% for the A (high) (sf) scenario, a 25% and 50% increase on the applicable PD.
-- Recovery rate used: Expected recovery rate of 32.2% for the A (high) (sf) scenario.
-- Loss given default (LGD) used: Expected LGD of 67.8% for the A (high) (sf) 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 a 25% increase on the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase on the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase on the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase on the expected LGD.
DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: BBB (high) (sf), BB (high) (sf), BBB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), B (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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Ilaria Maschietto, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 July 2021
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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 (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating CLOs Backed by Loans to European SMEs and DBRS Morningstar SME Diversity Model 18.104.22.168 (28 June 2021), https://www.dbrsmorningstar.com/research/380640/rating-clos-backed-by-loans-to-european-smes.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Rating European Structured Finance Transactions Methodology (21 July 2020), https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
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.
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