DBRS Confirms Ratings on Auto ABS Italian Loans Master SRL

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the following notes issued by Auto ABS Italian Loans Master SRL (the Issuer):
-- EUR 229,687,500 Class A1 Notes: Confirmed at AA (sf)
-- EUR 229,687,500 Class A2 Notes: Confirmed at AA (sf)

The confirmation of the ratings on the Notes is based upon the following analytical considerations:
-- Portfolio Performance, in terms of delinquencies and defaults, as of the December 2015 payment date.
-- No Amortisation Events have occurred.
-- The current available credit enhancement to the Notes to cover expected losses assumed in line with AA (sf) rating level.
-- The amendments on the transaction signed on 16 December 2015.

The Issuer is a limited liability company incorporated under the laws of Italy. The transaction is a securitisation collateralised by a portfolio comprised by Receivables arising from Auto Loan Contracts granted to predominantly retail clients resident in Italy. The transaction closed on 29 September 2014 and has a revolving period during which additional receivables may be acquired with proceeds from monthly Collections or through additional drawdowns on the Notes, up to each Class Target Amount.

As part of a global cooperation strategy aimed at supporting the sales of PSA group cars by providing financing to end-customers and dealers, the business unit of Banque PSA Finance, Italian Branch has been transferred on 1 January 2016 to Banca PSA Italia S.p.A., a joint venture detained equally by Banque PSA Finance and Santander Consumer Bank S.p.A. In the context of this reorganisation, the following amendments were made to the transaction:
-- Banca PSA Italia S.p.A. replaced Banque PSA Finance, Italian Branch as Seller, Servicer, General Reserve Subordinated Loan Provider, Commingling Reserve Subordinated Loan Provider and Class B Notes Subscriber;
-- Banca PSA Italia S.p.A. replaced Banque PSA Finance as Cash Manager.

Moreover, the Issuer will:
-- Extend the Revolving Period for one more year, until January 2017;
-- Extend the Legal Maturity of the Notes for one more year, until December 2028;
-- Decrease the global portfolio limit on the minimum effective yield of the portfolio to 5.0% (from 5.5%);
-- Decrease the Base Margin of Class A Notes to 0.75%, from 1.20%.
-- Amend the swap agreement in place, by increasing the fixed rate paid by the Issuer from 0.30% to 1.05% (in order to include the 0.75% margin paid under the Class A Notes), and adding a spread of 0.75% on the floating rate received.

These changes will become effective on the January 2016 payment date.

As of the December 2015 payment date, one-month delinquencies were 1.51% of the principal outstanding balance, two-month delinquencies were 0.26% and three-month delinquencies were 0.08%, while delinquencies greater than three months were 0.07%. The gross cumulative default ratio was 0.13% of the aggregate original portfolio balance with cumulative recoveries at 5.81%.

Credit Enhancement for Class A1 and Class A2 Notes (14.15%) is provided by the subordination of Class B Notes and the General Reserve Account.

The Issuer entered into two Subordinated Loan Agreements with Banque PSA Finance, Italian Branch (replaced by Banca PSA Italia S.p.A. on 1 January 2016), the General Reserve Subordinated Loan Agreement and the Commingling Reserve Subordinated Loan Agreement, whose proceeds financed the funding of both the General Reserve and the Commingling Reserve accounts at closing by their Required Amount. Under these agreements, the Subordinated Loan Provider shall also advance to the Issuer the additional Required Amounts when additional drawdowns on the Notes occur.

BNP Paribas Securities Services, Milan Branch acts as Accounts Bank for the transaction. The DBRS private rating complies with the Minimum Institution Rating given the rating assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

HSBC France is the Swap Counterparty. The DBRS private rating of both entities comply with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable are “Rating European Consumer and Commercial Asset-Backed Securitisations” and “Master European Structured Finance Surveillance Methodology”.

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

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s ‘The Effect of Sovereign Risk on Securitisations in the Euro Area’ commentary on
http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for these ratings include performance data relating to the receivables provided by Banque PSA Finance SA, Banque PSA Finance, Italian branch and PSA Peugeot Citroën SA via the Arrangers HSBC France SA and UniCredit Bank AG, London branch. DBRS received historical performance data relating to Banque PSA Finance, Italian Branch’s originations by quarterly vintage on a cumulative net loss basis going back to 2007. Data was also provided relating to delinquencies, prepayments and provisional portfolio stratification tables that allowed DBRS to further assess the collateral.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was supplied with third-party assessments; however, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

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

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing transaction parameters on the rating, DBRS considered the following stress scenarios compared with the parameters used to determine the rating (the base case):

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio 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 receivables are 3.54% and 83.09%, respectively (excluding sovereign stress). The base case loss assumptions have improved in relation to the initial rating analysis.

-- The Risk Sensitivity overview below illustrates the ratings expected for the Class A1 and Class A2 Notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating for the Class A1 and Class A2 Notes would be maintained at AA (sf), all else being equal. If the PD increases by 50%, the rating for the Class A1 and Class A2 Notes would be expected to follow to AA (low) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating for the Class A1 and Class A2 Notes would be expected to follow to A (sf), all else being equal.

Class A1 and Class A2 Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) in a central repository, see
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Paolo Conti
Initial Rating Date: 29 September 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Chuck Weilamann

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at
http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.