DBRS Takes Rating Actions on CQS Transactions Following Methodology Update

DBRS Ratings Limited (DBRS) has today taken rating actions on 13 classes of notes from six Italian salary-assignment loan transactions. Of the 13 classes, 11 classes were upgraded, one class was confirmed and one class was downgraded. Additionally, all the notes have subsequently been removed from their previous Under Review with Developing Implications (UR-Dev.) status. The rating actions taken are as follows:

-- IBL CQS 2013 S.r.l. Class A upgraded to AA (low) (sf) from A (sf)
-- IBL CQS 2013 S.r.l. Class B upgraded to A (low) (sf) from BBB (high) (sf)
-- Quinto Sistema SEC 2016 S.r.l. Class A Notes upgraded to A (high) (sf) from A (sf)
-- Quinto Sistema SEC 2016 S.r.l. Class B Notes upgraded to A (low) (sf) from BBB (sf)
-- Madeleine SPV S.r.l. Class A Notes upgraded to A (high) (sf) from A (sf)
-- Madeleine SPV S.r.l. Class B Notes upgraded to A (low) (sf) from BBB (sf)
-- Golden Bar (Securitisation) S.r.l.- Series 2016-1 Class A Notes downgraded to A (low) (sf) from A (sf)
-- Golden Bar (Securitisation) S.r.l.- Series 2016-1 Class B Notes upgraded to BBB (high) (sf) from BBB (sf)
-- Golden Bar (Securitisation) S.r.l - Series 2016-1 Class C Notes upgraded to BBB (sf) from BB (sf)
-- Golden Bar (Securitisation) S.r.l. - Series 2016-1 Class D Notes upgraded to BB (sf) from B (sf)
-- Towers CQ S.r.l. Class A Asset Backed Floating Rate Notes confirmed at A (sf)
-- Towers CQ S.r.l. Class B Asset Backed Floating Rate Notes upgraded to A (low) (sf) from BBB (sf)
-- Quarzo CQS S.r.l. Class A upgraded to A (high) (sf) from A (sf)

The rating actions are the result of a full review of each transaction following publication of DBRS’s “Italian Salary-Assignment Loan Securitisations – Methodology” (the Methodology) on 11 May 2017.

Since publication of the Methodology, DBRS may have requested additional information to the affected issuers and reviewed and incorporated that information, if provided, into its analysis.

The notes of the six aforementioned securitisations 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, the notes were placed UR-Dev. on 20 January 2017, following the downgrade of the Republic of Italy, while DBRS reviewed the sensitivity of the CQS transactions’ credit risk to the credit risk of the Italian sovereign, considering the particular characteristics of each transaction.

The Methodology details DBRS’s analysis for securitisations of Italian salary-assignment loans. It outlines how DBRS considers the specific aspects of these loans and portfolios.

In analysing securitisations of salary-assignment loans, DBRS first assesses the level of job events and life events likely to occur under different stresses as a result of idiosyncratic borrower behaviour, employer default and the decisions of the Italian state. DBRS then considers the extent to which insurance policies will mitigate the losses based on the terms of the insurance contracts and the credit performance of insurers.

At the time of the aforementioned methodology publication, DBRS rated 14 classes of notes across seven Italian salary-assignment loan transactions that were affected by the updated Methodology. For one transaction, IBL Finance S.r.l. (IBL CQS 2015), DBRS took the related rating action on 1 June 2017; as such, today’s rating actions refer to the remaining six transactions (13 tranches).

Along with the material changes introduced by the Methodology, all the rating actions are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults.
-- The default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) available to the notes to cover the expected losses at each tranche’s respective rating levels.
-- Resolution of the UR-Dev. status after DBRS has determined the sensitivity of its ratings on Italian salary-assignment loan transactions to the increased credit risk of the Italian sovereign.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings are: “Italian Salary-Assignment Loan Securitisations – Methodology” and “Master European Structured Finance Surveillance Methodology”.

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

For a more detailed discussion of the approach to salary-backed loans in Structured Finance ratings, please refer to DBRS “Italian Salary-Assignment Loan Securitisations – Methodology” at:
http://dbrs.com/research/310382/italian-salary-assignment-loan-securitisations-methodology.pdf

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

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

Other methodologies referenced in these transactions 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 the European DataWarehouse GmbH and the parties involved in the ratings, including but not limited to the originators, the issuers and their agents.

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

At the time of the initial ratings, DBRS was supplied with third-party assessments for Golden Bar (Securitisation) S.r.l. - Series 2016-1, Quinto Sistema SEC 2016 S.r.l. and Towers CQ S.r.l. and was not supplied with third-party assessments for the remaining deals. However, this did not have an impact on 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.

Please see the attached disclosure “DBRS Takes Rating Actions on CQS Transactions Following Methodology Update – Disclosures” for the following information related to each rating action:

-- Initial Rating Date
-- Last Rating Action Date
-- Lead Surveillance Analyst
-- Rating Committee Chair
-- Portfolio Default Rate and Loss Given Default
-- Risk Sensitivity Analysis

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

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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London EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of these transactions can be found at: http://www.dbrs.com/about/methodologies.

-- Italian Salary-Assignment Loan Securitisations – Methodology
-- Master European Structured Finance Surveillance Methodology
-- 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.