Press Release

DBRS Morningstar Finalises Provisional Ratings on Alba 12 SPV S.r.l.

Consumer/Commercial Leases

November 16, 2021

DBRS Ratings GmbH (DBRS Morningstar) finalised the following provisional ratings on the notes issued by Alba 12 SPV S.r.l. (the Issuer or Alba 12 SPV):

-- Class A1 Asset-Backed Floating Rate Notes due October 2041 (the Class A1 Notes) at AAA (sf)
-- Class A2 Asset-Backed Floating Rate Notes due October 2041 (the Class A2 Notes) at AAA (sf)
-- Class B Asset-Backed Floating Rate Notes due October 2041 (the Class B Notes) at BBB (high) (sf)

The ratings on 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 rating on the Class B Notes addresses 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 Class J Asset-Backed Floating Rate Notes due October 2041, which are not rated by DBRS Morningstar.

Alba 12 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 25 September 2021. As of the initial valuation date, the portfolio consisted of 12,568 lease contracts extended to 8,935 borrowers, with an aggregate par balance of EUR 1,103.99 million. The initial portfolio consisted of 20.8% vehicle leases; 49.7% equipment leases; 28.0% real estate leases; and 1.6% air, naval, and train leases.

The transaction includes a cash reserve, which is available to cover expenses, senior fees, and interest on the Class A1 and Class A2 Notes, and interest on the Class B Notes if the relevant interest subordination event has not occurred. The target cash reserve is equal to 1.0% 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, and Class B Notes benefit from a total credit enhancement of 57.0%, 36.6%, and 15.0%, respectively, which is provided by the overcollateralisation of the portfolio and does not include the cash reserve. 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 30.9%, 12.1%, and 10.5%, 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 21.4%, 12.2%, and 9.2% 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 0.7%, 3.1%, and 5.2% of the outstanding portfolio balance, respectively.

Alba Leasing acts as the servicer and Banca Finanziaria Internazionale 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 that the Servicer’s appointment is terminated, the Issuer revokes the appointment to the servicer and appoints the backup servicer as a substitute for 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’s updated operational risk review of Alba Leasing in July 2021, during which DBRS Morningstar determined it to be 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 Stable 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:
-- DBRS Morningstar determined the probability of default (PD) for the portfolio using the historical performance information supplied. DBRS Morningstar assumed an annualised PD of 2.4% for vehicles and equipment leases; 1.5% for real estate leases; and 10.1% for air, naval, and train leases. DBRS Morningstar applied additional adjustments in the context of the current Coronavirus Disease (COVID-19) pandemic.
--The assumed weighted-average life (WAL) of the portfolio was 3.2 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.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many ABS transactions. The ratings are based on additional analysis 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

ESG CONSIDERATIONS
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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (29 October 2021).

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 DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include performance data relating to the receivables provided by the Originator directly or through the arrangers: Intesa Sanpaolo S.p.A.; Société Générale, S.A.; 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 2011 to Q2 2021,
-- Static quarterly recovery data from Q1 2013 to Q2 2021,
-- Dynamic quarterly delinquency data from Q1 2014 to Q2 2021, and
-- Dynamic quarterly prepayment data from Q1 2013 to Q2 2021.

In addition, DBRS Morningstar received loan-level characteristics, stratification data, and contractual amortisation profile as at 25 September 2021.

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 these ratings 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.

This is the first rating action since the Initial Rating Date.

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):

-- PD Rate Used: Base Case PD of 2.4% for vehicles and equipment leases, 1.5% for real estate leases and 10.1% for air, naval and train leases. 37.7% for a AAA (sf) scenario, and 21.2% for a BBB (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, and 66.5% for a BBB (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 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), AA (high) (sf), AAA (sf), AAA (sf), AA (sf).
-- Class A2 Notes: AAA (sf), AA (sf), A (high) (sf), A (low) (sf), A (high) (sf), A (high) (sf), BBB (high) (sf), BBB (low) (sf).
-- Class B Notes: BB (high) (sf), BB (high) (sf), BBB (low) (sf), BB (high) (sf), BB (low) (sf), BB (high) (sf), BB (low) (sf), B (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: 2 November 2021

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.

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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