DBRS Upgrades Auto ABS Italian Loans Master SRL’s Class A1 and Class A2 Notes

DBRS Ratings Limited (DBRS) has today upgraded Class A1 and Class A2 notes (together, the Class A notes) issued by Auto ABS Italian Loans Master SRL (the Issuer) to AA (high) (sf) from AA (sf), following the annual review of the transaction and considering a transaction restructuring.

The above-mentioned rating actions are based on the following analytical considerations:
-- Improved base case assumptions, considering the updated quarterly vintage performance data received by DBRS;
-- The portfolio performance, in terms of level of delinquencies and defaults, as of December 2016;
-- No Amortisation Events have occurred;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions;
-- The current available credit enhancement to the Class A notes to cover expected losses assumed in line with the AA (high) (sf) rating level.

The ratings on the Class A notes address the timely payment of interest and ultimate payment of principal payable on or before the Legal Final Maturity Date in December 2029.

The Issuer is an Italian securitisation collateralised by a portfolio of auto loan receivables granted to predominantly Italian retail clients Banca PSA Italia S.p.A. (BPSA), a joint venture equally detained by Banque PSA Finance and Santander Consumer Bank S.p.A.

The transaction closed in 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 (EUR 350.0 million for the Class A1 notes, EUR 350.0 million for Class the A2 notes and EUR 400.0 million for the Class B notes).

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 was transferred to BPSA on 4 January 2016. In the context of this reorganisation, several amendments were made to the transaction, including the replacement of Banque PSA Finance, Italian Branch and Banque PSA Finance by BPSA in the several roles both entities originally assumed in the context of this securitisation.

The following amendments, executed on 9 January 2017, will become effective on the January 2017 payment date:

-- Extension of the Revolving Period for an additional period of 12 months, until January 2018;
-- Decrease of the Base Margin applicable to the Class A notes to 0.60% from 0.75%;
-- Introduction of a 0% floor to the Class A notes coupon;
-- Increase of the Advance Rate to 88.0% from 87.5%, leading to a decrease on the Class A notes credit enhancement (CE) by 50 basis points;
-- Modification of the definitions of "Eligible Investments" and "Eligible Institution";
-- Introduction of a call option in favour of BPSA to purchase all the Class A notes at any time during the Amortisation Period;
-- Amendment to the Swap Agreement, by including a floor of 0% on the floating rate received, decreasing the margin on the floating rate received by the Issuer to 0.60% from 0.75% and decreasing the fixed rate paid to 0.75% from 1.05%;
-- Amendment of the definition of “DBRS Ratings Downgrade Provisions” applied to the Swap Counterparty to include a reference to DBRS’s Long Term Critical Obligations Rating;
-- Replacement of Banca Nazionale del Lavoro by Intesa Sanpaolo SpA as Servicer Collection Account Bank;
-- Transfer of all the Class A1 notes held by Regency Assets Designated Activity Company to Mont Blanc Capital Corp and the succession of ING (in substitution of HSBC France) in the capacity as Class A1 Funding Agent;
-- Decrease of the average Effective Interest Rate defined under the Global Portfolio Limits to 4.85% from 5.00%.

As of 28 December 2016, the balance of the Class A1 and A2 notes was EUR 250.0 million each, and the balance of Class B notes was EUR 71.4 million. The EUR 571.4 million securitised portfolio (excluding defaulted receivables) consisted of 100,057 loans granted to private (97.8%) and corporate clients (2.2%) for the purpose of financing the purchase of new (93.7%) and used vehicles (6.3%).

Loans in arrears between 31 days and 60 days and 61 to 90 days represented 0.3% and 0.1% of the outstanding principal balance of the portfolio, respectively, while delinquencies greater than 90 days were 0.04%. Gross cumulative defaults, as a percentage of the original portfolio and cumulative transferred receivables, stood at 0.2%, with cumulative recoveries of 15.1%.

CE for the Class A notes (14.2%) is provided by the subordination of the Class B Notes and the General Reserve Account. DBRS analysis considers 13.7% CE for Class A notes, as expected upon the increase of the Advance Rate by 50 basis points on the January 2017 payment date.

The Issuer entered into two Subordinated Loan Agreements with BPSA, 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.

DBRS has received updated vintage performance data, split between vehicle type and client type. With the updated data, DBRS recalibrated its base case assumptions of gross default and recovery for each loan type and noted a general improvement in the base cases, in particular due to the better performance on the most recent vintages of loans granted to private clients. The updated base case Probability of Default (PD) is 3.2% and the Recovery Rate is 17.0%, excluding sovereign adjustment.

DBRS ratings on the Republic of Italy’s Long-Term Foreign and Local Currency Issuer Ratings are currently A (low), Under Review with Negative Implications. As part of its analysis, DBRS has investigated the sensitivity of the transaction base case default and recovery assumptions to a potential downgrade of the Italian sovereign rating. DBRS has concluded that a potential downgrade of the Republic of Italy sovereign rating, as envisaged in the sovereign rating action taken on 5 August 2016 (http://www.dbrs.com/research/297987/ dbrs-places-italy-a-low-under-review-with-negative-implications-on-heightened-risks.html), would not in itself affect the rating assigned to the Class A notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings 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.

An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

DBRS has reviewed the amended transaction documents including the Master Amendment and Restatement Agreement, Intercreditor Agreement, Terms and Conditions of the Notes, Class A Notes Subscription Agreement, Master Receivables Transfer Agreement and Swap Agreement.

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 data and information used for these ratings include investor reports provided by BNP Paribas Securities Services SCA (the Calculation Agent), data from the European DataWarehouse GmbH and data provided by BPSA via Unicredit Bank AG, London branch, and ING Bank N.V., London branch. DBRS received historical performance data relating to BPSA’s originations by quarterly vintage on a cumulative net loss basis going back to 2007. Related delinquencies and prepayments data was also provided.

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

DBRS was supplied with third party assessments in December 2015. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 11 January 2016, when DBRS confirmed the ratings on the Class A notes at 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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a base case PD and loss given default (LGD) for the portfolio based on a review of the current assets and the transaction’s replenishment criteria. 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 3.2% and 83.0%, respectively, excluding sovereign stress.

-- The Risk Sensitivity below illustrates the ratings expected for the Class A 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 of the Class A notes would be expected to remain at AA (high) (sf), all else being equal. If the PD increases by 50%, the rating of Class A notes would be expected to decrease to AA (low) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to decrease to A (high) (sf), all else being equal.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (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, Managing Director
Initial Rating Date: 29 September 2014

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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

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