DBRS Takes Rating Actions on 18 EU SF Transactions, Following Republic of Italy Sovereign Rating Downgrade

DBRS Ratings Limited (DBRS) has today taken rating actions on 27 ratings from 18 European Structured Finance transactions, removing their Under Review with Negative Implications (UR-Neg.) status.

The rating actions reflect the Republic of Italy (Italy) Long-Term Foreign Currency – Issuer Rating being downgraded to BBB (high), with a Stable trend on 13 January 2017 (see DBRS press release entitled, “DBRS Downgrades Italy to BBB (high), Stable Trend”).

Today’s rating actions conclude the current UR-Neg. status of these transactions, originally placed UR-Neg. as a result of the rating of Italy being placed UR-Neg. on 5 August 2016, when DBRS identified three different groups of transactions potentially affected by a potential downgrade of the sovereign rating of Italy below A (low) (see DBRS press release entitled, “DBRS Places 18 EU SF Transactions Under Review with Negative Implications (UR-Neg.), Following Republic of Italy Sovereign Rating Being Placed UR-Neg.”).

(1) Securitisations collateralised by a sovereign inflation-linked bond issued by the Republic of Italy (the Collateral) where the noteholders are effectively exposed to the risk that either the Collateral or the counterparties default. As such, DBRS regards the ratings of the Notes to be linked to those of the Collateral and Hedging Counterparty, and uses the ratings of Italy to evaluate the credit risk of the Collateral and monitor its credit risk on an ongoing basis.

Following the downgrade of the rating of Italy to BBB (high), DBRS has conducted a full review of these transactions and has today downgraded the ratings of all of them to BBB (high) (sf), removing their current UR-Neg. status.

(2) Securitisations where the notes are backed by salary-backed loan receivables (the Receivables) originated in Italy. The Receivables may include salary assignment loans (Cessione del Quinto di Stipendio), pension assignment loans (Cessione del Quinto di Pensione) and payment delegation loans (Delegazione di Pagamento) (together, CQS transactions). Given the relevance of the exposure to Italian sovereign risk, DBRS’s rating analysis assumes the credit risk of the rated notes of CQS transactions to be correlated with the sovereign rating.

DBRS is currently reviewing the sensitivity of the CQS transactions’ credit risk to the credit risk of the Italian sovereign, considering the particular characteristics of each transaction. As the full impact of the review has yet to be determined, DBRS has placed the CQS transactions listed below Under Review with Developing Implications (UR-Dev.).

(3) Transactions where DBRS, as part of its analysis, has investigated the sensitivity of the transaction base case default and recovery base case assumptions to a potential downgrade of the Italian sovereign rating. The sovereign stress is incorporated into DBRS structured finance analysis following “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary.

As a result of the application of additional sovereign stress following the downgrade of Italy, there has been a one-notch downgrade of the senior class in one transaction. Please refer to the bottom of the Press Release for more information.

The complete list of ratings affected by today’s rating action can be found listed below.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable are “Master European Structured Finance Surveillance Methodology” and “Rating CLOs and CDOs of Large Corporate Credit.”

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

For transactions placed UR-Dev., DBRS is undertaking a review and will remove the rating from this status as soon as it is appropriate. The current UR-Dev. rating actions are event driven and, in DBRS’s opinion, the analysis does not warrant the application of the entire principal methodology and the analysis focused on the impact that the DBRS updated approach for CQS transactions could have on the ratings of these transactions.

A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating actions for each transaction.

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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of data and information used for the rating action on Golden Bar (Securitisation) S.r.l. – Series 2015-1 include investor reports provided by Deutsche Bank AG, London Branch, servicer reports provided by Santander Consumer Bank SpA and data from the European DataWarehouse GmbH. The sources of data and information for the Palladium transactions include Palladium Securities 1 S.A. and other public sources. Finally, all the rating actions taken today include as source of data and information the impact of the downgrade of the sovereign rating of Italy, as envisaged in the rating action taken on 13 January 2017.

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

At the time of the initial rating, DBRS was not supplied with third-party assessments, except for Tower CQ S.r.l. However, this did not impact the rating analysis in any case.

DBRS considers the data and the information available to it for the purposes of providing this rating 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 date for each transaction is listed at the end of this press release, along with the sensitivity analysis and further analytical information used to take today’s rating actions for transactions that are not UR-Dev.

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

Some ratings listed below are UR-Dev. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

For further information on DBRS historic 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.

DBRS Ratings Limited
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31st Floor
London EC3M 3BY
United Kingdom

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

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

ARIANNA SPV S.R.L.
Last Rating Action Date: 16 December 2016

Lead Analyst: Andrew Lynch, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 December 2013

GOLDEN BAR (SECURITISATION) S.R.L. - SERIES 2015-1 (GOLDEN BAR 2015)
Today’s rating actions on Golden Bar 2015 follows an annual review of the transaction as well as resolves the UR-Neg. status of the ratings incorporating DBRS’s analysis of the impact of the downgrade of the rating of Italy, and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of December 2016.
-- Updated default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Rated Notes to cover the expected losses at their respective rating levels.
-- Downgrade of the rating of Italy by one notch.

Golden Bar 2015 is a securitisation of Italian unsecured consumer loan receivables originated and serviced by Santander Consumer Bank SpA (SCB). The transaction is currently in its revolving period, which is scheduled to end in October 2018.

Performance of the transaction is in line with DBRS expectations. Delinquencies have been relatively low and stable since the DBRS initial rating. Current 90+ arrears are at 0.37%, up marginally from 0.25% in December 2015. Gross cumulative defaults as per the transaction definition have increased steadily since closing but are currently low at 0.66%, including any defaulted loans that have been sold to third parties or repurchased since the closing date.

The main drivers of the downgrade of the Class A Notes are the increased probability of default (PD) and loss given default (LGD) assumptions given the additional sovereign stress applied following the downgrade of Italy by one notch. The sovereign-adjusted base case net loss assumption has been increased to 8.54% from 8.22%.

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

The last rating action on this transaction took place on 22 November 2016, when the UR-Neg. status on the ratings was extended.

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

-- DBRS expected a lifetime base-case PD and LGD for the pool 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 loans for the Issuer are 9.05% and 86.75%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to fall to BBB (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to fall to BBB (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to B (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf).
-- 50% increase in LGD, expected rating of BBB (low) (sf).
-- 25% increase in PD, expected rating of BBB (sf).
-- 50% increase in PD, expected rating of BBB (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of B (low) (sf).

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (sf).
-- 50% increase in LGD, expected rating of B (sf).
-- 25% increase in PD, expected rating of BB (sf).
-- 50% increase in PD, expected rating of B (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf).

Lead Analyst: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 9 October 2015

GOLDEN BAR (SECURITISATION) S.R.L. - SERIES 2016-1
Last Rating Action Date: 22 November 2016

Lead Analyst: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 2 August 2016

IBL CQS 2013 S.R.L.
Last Rating Action Date: 22 November 2016

Lead Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 20 December 2013

IBL FINANCE S.R.L. (IBL CQS 2015)
Last Rating Action Date: 22 November 2016

Lead Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 22 May 2015

MADELEINE SPV S.R.L.
Last Rating Action Date: 22 November 2016

Lead Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 17 July 2014

QUARZO CQS S.R.L.
Last Rating Action Date: 22 November 2016

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 9 March 2015

QUINTO SISTEMA SEC 2016 S.R.L.
This is the first rating action since the Initial Rating Date. The lead analyst responsibilities for this transaction have been transferred to Antonio Di Marco.

Lead Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 19 October 2016

TOWERS CQ S.R.L.
Last Rating Action Date: 22 November 2016

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 2 June 2016

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 114-2013-14
Last Rating Action Date: 22 November 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 6 June 2013

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 117-2013-17
Last Rating Action Date: 22 November 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 7 August 2013

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 121-2013-21
Last Rating Action Date: 22 November 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 7 October 2013

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 124-2013-24
Last Rating Action Date: 22 November 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 15 January 2014

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 131-2014-06
Last Rating Action Date: 22 November 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 6 May 2014

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 141-2014-16
Last Rating Action Date: 14 October 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 10 October 2014

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 142-2014-17
Last Rating Action Date: 14 October 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 10 October 2014

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 145-2014-20
Last Rating Action Date: 22 November 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 19 January 2015

PALLADIUM SECURITIES 1 S.A. ACTING IN RELATION TO COMPARTMENT 148-2014-23
Last Rating Action Date: 22 November 2016

Lead Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 25 February 2015