DBRS Confirms and Upgrades Ratings on Sunrise S.r.l. - Series 2014-2

DBRS Ratings Limited (DBRS) has today confirmed and upgraded its ratings on the Notes issued by Sunrise S.r.l. - Series 2014-2 (the Issuer) as follows:
-- EUR 46,691,307 Class A1 Notes confirmed at AAA (sf)
-- EUR 54,996 Class A2 Notes confirmed at AAA (sf)
-- EUR 319,000,000 Class M Notes upgraded to AAA (sf) from AA (sf)

The above-mentioned rating actions follow an annual review of the transaction and are based on the following analytical considerations, as described more fully below:

-- The overall portfolio performance as of the November 2016 payment date, in particular with regard to low levels of cumulative net loss and delinquencies.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the Notes.
-- The increased levels of credit enhancement available to the Notes to cover expected losses assumed in line with AAA (sf) rating level.

The ratings of the Notes address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in November 2031.

Sunrise S.r.l. – Series 2014-2 is a securitisation consisting of unsecured Italian consumer loan receivables granted to retail clients and originated by Agos Ducato S.p.A. (Agos). The portfolio, as of the November 2016 payment date, consists of auto loans (14.4%), personal loans (82.0%), furniture loans (3.3%) and special-purpose loans (0.3%). Of these loans, 65.5% are Flexible Loans that allow the borrower the option to skip one monthly instalment per year (up to a maximum of five times during the life of the loan) and to modify the amount of the monthly instalments.

The transaction envisaged an initial six-month revolving period, and the Notes started to amortise on the August 2015 payment date.

As of the November 2016 payment date, two-month delinquencies were 0.8% of the principal amount outstanding and three-month delinquencies were 0.5%, while delinquencies greater than three months were 1.2%. The gross cumulative defaults as a ratio of the original portfolio plus all additional recievables were 1.4%, of which 2.4% has been recovered.

Credit Enhancement (CE) is provided by overcollateralisation, the subordination of the most junior obligations and the Cash Reserve Account through a Principal Deficiency Ledger mechanism. CE for the Class A1 and A2 Notes increased from 44.6% at closing in December 2014 to 99.8% in November 2016, while CE for the Class M Notes increased from 23.6% to 55.3%.

The transaction benefits from liquidity support in the form of two non-amortising reserves. The EUR 15.2 million Payment Interruption Risk Reserve Account is available to cover senior expenses and missed interest payments on the rated Notes, while the EUR 45.6 million Cash Reserve Account can additionally be used to offset the principal losses of defaulted receivables. A EUR 30.4 million Commingling Reserve is also available, and will become part of the Interest Available Funds in the event of servicer insolvency. All three reserves are currently at their target levels.

The structure also includes a Rata Posticipata Cash Reserve, which mitigates the liquidity risk arising from Flexible Loans. This reserve is only funded if, for two consecutive payment dates, the outstanding balance of the Flexible Loans in relation to which the debtors have exercised the contractual right to postpone the payments is higher than 5% of the outstanding balance of all Flexible Loans. As of the November 2016 payment date, this condition had not been met.

A swap structure is in place to hedge the interest rate mismatch between the Notes, indexed to three-month Euribor, and the fixed interest rate payments from the collateral portfolio. Crédit Agricole Corporate and Investment Bank S.A. (Crédit Agricole CIB) and Credit Suisse International are the counterparties of the swap agreements, and the private DBRS ratings of Crédit Agricole CIB and Credit Suisse International comply with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Crédit Agricole Corporate and Investment Bank S.A., Milan Branch acts as the Account Bank for the transaction. DBRS’s private rating of Crédit Agricole Corporate and Investment Bank S.A., Milan Branch complies with the minimum institution rating, given the ratings assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: “Master European Structured Finance Surveillance Methodology”.

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

A review of the transaction legal documents was not conducted as the documents 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 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 commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports provided by Crédit Agricole CIB, servicer reports provided by Agos and data from the European DataWarehouse GmbH.

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

DBRS was not 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 to be 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.

The last rating action on this transaction took place on 4 December 2015, when the ratings of the Class A1 and Class A2 Notes were confirmed at AAA (sf), and the rating of the Class M Notes was upgraded from A (high) (sf) to AA (sf).

The lead responsibilities for this transaction have been transferred to Joana Seara da Costa.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to 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 the credit ratings.

-- The Base Case of PD and LGD of the current pool of assets of receivables (excluding sovereign stress) are 9.5% and 88.3%, respectively.

-- The risk sensitivity overview below illustrates the ratings expected for the 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 ratings for the Class A1, Class A2 and Class M Notes would be expected to all remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the ratings for the Class A1 and Class A2 Notes would be expected to remain at AAA (sf), while the rating for the Class M Notes would be expected to decrease to AA (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating for the Class A1 and Class A2 Notes would be expected to remain at AAA (sf), while the rating for the Class M Notes would be expected to decrease to AA (sf), ceteris paribus.

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

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

Class M Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

For further information on DBRS 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.

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

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz
Initial Rating Date: 11 November 2014

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.

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- 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.