DBRS Confirms and Upgrades Ratings on Sunrise S.r.l. - Series 2015-3

DBRS Ratings Limited (DBRS) has today confirmed and upgraded its ratings on the Notes issued by Sunrise S.r.l. - Series 2015-3 (the Issuer) as follows:
-- EUR 420,000,000 Class A1 Notes confirmed at AAA (sf)
-- EUR 135,700,000 Class A2 Notes confirmed at AAA (sf)
-- EUR 161,500,000 Class M Notes upgraded to AA (sf) from A (high) (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 their respective rating levels.

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 May 2035.

Sunrise S.r.l. – Series 2015-3 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 (16.0%), personal loans (74.9%), furniture loans (5.9%) and special-purpose loans (3.2%). Of these loans, 63.0% 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 12-month revolving period, and the Notes will start to amortise on the December 2016 payment date.

As of the November 2016 payment date, two-month delinquencies were 0.3% of the outstanding principal balance and three-month delinquencies were 0.2%, and delinquencies greater than three months were 0.4%. The gross cumulative defaults as a ratio of the original portfolio plus all additional receivables were 0.3%, of which 0.8% 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 42.0% at closing in November 2015 to 44.5% in November 2016, while CE for the Class M Notes increased from 25.0% to 27.5%.

The transaction benefits from liquidity support in the form of two non-amortising reserves. The EUR 9.5 million Payment Interruption Risk Reserve Account is available to cover senior expenses and missed interest payments on the rated Notes, while the EUR 28.5 million Cash Reserve Account can additionally be used to offset the principal losses of defaulted receivables. A EUR 19.0 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 targeted 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 one-month Euribor, and the fixed interest rate payments from the collateral portfolio. Crédit Agricole Corporate and Investment Bank S.A. (Crédit Agricole CIB) is the swap counterparty and the private DBRS rating of Crédit Agricole CIB complies 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 supplied with third-party assessments at the Initial Rating Date. 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 26 November 2015, when DBRS finalised the provisional ratings assigned to the Class A1, Class A2 and Class M Notes.

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 9.0% and 88.1%, 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 remain at AAA (sf), AAA (sf) and AA (sf), respectively, ceteris paribus. If the PD increases by 50%, the ratings for the Class A1, Class A2 and Class M Notes would be expected to decrease to AA (sf), AA (sf) and A (high) (sf), respectively, ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the ratings for the Class A1, Class A2 and Class M Notes would be expected to decrease to AA (low) (sf), AA (low) (sf) and A (sf), respectively, 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 AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (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 AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
Class M 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 (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (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 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: 9 November 2015

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
-- 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.