DBRS Takes Rating Actions on Sunrise S.r.l. - Series 2016-1

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the Notes issued by Sunrise S.r.l. - Series 2016-1:

-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)
-- Class M Notes upgraded to AA (low) (sf) from A (high) (sf)

The above-mentioned rating actions are based on the following analytical considerations, as described more fully below:
-- The overall portfolio performance as of the April 2017 payment date, in particular with regards to low levels of cumulative net loss and delinquencies.
-- The increased levels of credit enhancement (CE) available to the rated notes to cover expected losses.
-- No Revolving Period Termination Events have occurred and the revolving period will mature in one month.

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 July 2040.

Sunrise S.r.l. - Series 2016-1 is a securitisation consisting of unsecured Italian consumer loan receivables underwritten to retail clients and originated by Agos Ducato S.p.A. (Agos). The EUR 1,200.0 million portfolio, as of the April 2017 payment date, consists of auto loans (18.0%), personal loans (74.9%), furniture loans (3.9%) and special-purpose loans (3.1%). Of these, 61.8% 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.

PORTFOLIO PERFORMANCE
The gross cumulative default ratio (as a percentage of the original portfolio) is 0.2% as of April 2017, of which 0.3% has been recovered. The 90+ delinquency ratio is 0.4%.

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 to 43.3% in April 2017, from 40.8% at closing in June 2016, while CE for the Class M Notes increased to 28.3% from 25.8%. This increase reflects the increase in the size of the Cash Reserve up to its target level after closing using excess spread.

REVOLVING PERIOD MATURITY
The transaction envisages an initial one-year revolving period that is expected to mature in June 2017, after which the transaction will begin to amortise.

The transaction benefits from liquidity support in the form of two non-amortising reserves. The EUR 6.0 million Payment Interruption Risk Reserve Account is available to cover senior expenses and missed interest payments on the rated Notes, while the EUR 36.0 million Cash Reserve Account can additionally be used to offset the principal losses of defaulted receivables. A EUR 29.9 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 that 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 April 2017 payment date, this condition had not been breached.

Crédit Agricole Corporate and Investment Bank SA, Milan Branch (Crédit Agricole CIB, Milan) serves as Account Bank for the transaction. The DBRS private rating of Crédit Agricole CIB, Milan is above the Minimum Institution Rating given the rating assigned to the Notes, as described in the DBRS methodology “Legal Criteria for European Structured Finance Transactions.”

Crédit Agricole Corporate and Investment Bank S.A. (Crédit Agricole CIB) and Natixis S.A., London Branch (Natixis) are the Swap Counterparties for this transaction. The current private ratings of Crédit Agricole CIB and Natixis 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 methodology applicable to the rating is the: “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.

A review of the transaction legal documents was not conducted as the legal 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 data and information used for this rating include investor reports provided by Crédit Agricole CIB, Milan, servicer reports provided by Agos and data from the European DataWarehouse GmbH.

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

At the time of the initial rating DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and 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 on this transaction took place on 21 June 2016, when DBRS finalised the provisional ratings assigned to the Notes.

The lead analyst 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 the 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 credit ratings.

-- The Base Case of PD and LGD of the current pool of assets of receivables are 9.1% and 88.1% (excluding sovereign stress), respectively.

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

Class A1 and A2 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 (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 (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (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: 1 June 2016

DBRS Ratings Limited
20 Fenchurch Street, 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
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.