DBRS Takes Rating Actions on Three Asset-Backed European Securitisation Transactions

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the Notes issued by Asset-Backed European Securitisation Transaction Ten S.r.l. (A-BEST 10), Asset-Backed European Securitisation Transaction Twelve S.r.l. (A-BEST 12) and Asset-Backed European Securitisation Transaction Fourteen S.r.l. (A-BEST 14):

A-BEST 10:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (high) (sf)
-- Class C Notes upgraded to AA (sf) from AA (low) (sf)
-- Class D Notes upgraded to AA (sf) from A (high) (sf)

A-BEST 12:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to A (high) (sf) from A (sf)

A-BEST 14:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from A (high) (sf)
-- Class C Notes upgraded to A (sf) from BBB (high) (sf)
-- Class D Notes upgraded to BBB (high) (sf) from BBB (sf)

Today’s rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies and defaults.
-- Portfolio Default Rate (PD) and Recovery Rate (RR) assumptions for the remaining collateral pool.
-- The credit enhancement (CE) available to the Notes to cover the expected losses at their respective rating levels.
-- An amendment that reduced the margin payable on the A-BEST 12 Class A Notes.

All three transactions are a securitisation of portfolio of Italian auto loans originated and serviced by FCA Bank S.p.A. (FCA Bank), a joint venture that is 50% owned by Fiat Group and 50% owned by Crédit Agricole Consumer Finance.

A-BEST 10
The transaction closed in October 2014. As of 22 June 2017, loans more than 90 days delinquent as a percentage of the outstanding portfolio balance increased to 0.18%. The cumulative default ratio as a percentage of the portfolio balance at the transaction closing was 0.28%. The performance is well within DBRS’s expectations. DBRS has maintained the PD and RR assumptions at 2.25% and 12.47%, respectively.

The CE available to all the rated Notes has increased further as the transaction continues to deleverage. As of the 10 July 2017 payment date, the CE to the Class A, B, C and D Notes increased to 45.42%, 29.07%, 21.80% and 18.17%, respectively. The source of CE to each series of Notes are their respective subordinated Notes.

A-BEST 12
The transaction closed in August 2015. As of 22 June 2017, loans more than 90 days delinquent increased to 0.14%. The cumulative default ratio as a percentage of the portfolio balance at the transaction closing plus replenished loan balance was 0.19%. The performance is also within DBRS’s expectations. DBRS has maintained the PD and RR assumptions at 2.78% and 11.47%, respectively.

On 6 June 2017, the interest margin on the Class A Notes was reduced to 0.40% from 0.70%. This margin reduction is credit positive to the transaction. The transaction is currently in the revolving period which is scheduled to end on the October 2017 payment date. As a result, the CE available to the Class A and B Notes remains at 14.00% and 5.00%, respectively. The source of CE to each series of Notes are their respective subordinated Notes.

A-BEST 14
The transaction closed in May 2016 and the Notes were retranched in November 2016. As of 22 June 2017, loans more than 90 days delinquent were 0.09% of the outstanding pool balance. The cumulative default ratio as a percentage of the portfolio balance at the transaction closing plus replenished loan balance was 0.12%. The performance is within DBRS’s expectations. DBRS has maintained the PD and RR assumptions at 3.08% and 13.00%, respectively.

The transaction is also in the revolving period which is scheduled to end on the May 2018 payment date. As a result, the CE available to the Class A, B, C and D Notes remains at 16.31%, 11.71%, 7.82% and 4.82%, respectively. The source of CE to each series of Notes are their respective subordinated Notes.

All three transactions benefit from non-amortising Cash Reserves currently at their respective target amounts. A-BEST 10 has a Cash Reserve of EUR 7.0 million, A-BEST 12 EUR 11.2 million and A-BEST 14 EUR 15.4 million. The cash reserves are available to cover senior expenses and interest on the Notes, but do not provide credit enhancement until the last payment date when the Notes are to be paid in full.

Elavon Financial Services DAC acts as Account Bank to all three transactions. The DBRS private rating on the Account Bank meets the Minimum Institution Rating criteria given the rating assigned to the senior Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

UniCredit Bank AG (UniCredit) is the swap counterparty to A-BEST 10. UniCredit’s DBRS private rating is below the first rating threshold, given the ratings assigned to the Notes, and UniCredit is ready to post collateral when the swap is in-the-money for the Issuer, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

FCA Bank is the swap counterparty to A-BEST 12 with UniCredit and Crédit Agricole Corporate & Investment Bank S.A. as joint back-up swap counterparties. FCA Bank’s DBRS private rating does not meet the first rating threshold given the rating assigned to the senior Notes as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. The swap counterparty risk is mitigated through the existence of the back-up swap counterparties.

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 transactions in accordance with the principal methodology.

An asset and a cashflow analysis were both conducted. For the A-BEST 12 and A-BEST 14 transactions, 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.

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 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 monthly investor reports from U.S. Bank Trustees Limited and the monthly loan-by-loan data from European DataWarehouse GmbH.

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

At the time of each transaction’s initial ratings, 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 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 A-BEST 10 took place on 20 October 2016 when DBRS confirmed the Class A Notes and upgraded the Class B, C and D Notes. The last rating action on A-BEST 12 took place on 10 August 2016 when DBRS confirmed the Class A and B Notes. The last rating action on A-BEST 14 took place on 15 November 2016 when DBRS confirmed the Class A, B, C and D Notes.

The lead analyst responsibilities for A-BEST 14 have been transferred to Kevin Ma.

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 PD and loss given default (LGD) for the portfolios 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.

-- For A-BEST 10, the Base Case PD is 2.25% and RR is 12.47%, which translates to an 87.53% LGD.
-- For A-BEST 12, the Base Case PD is 3.07 % and RR is 11.47%, which translates to an 88.53% LGD.
-- For A-BEST 14, the Base Case PD is 3.08% and RR is 13.00%, which translates to an 87.00% LGD.

-- The Risk Sensitivity overview below illustrates the rating expected if the PD and LGD increase by a certain percentage over the Base Case assumption. For example, in A-BEST 10, if the LGD increased to 100%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD increased by 50% and the LGD increased to 100%, the rating on the Class A Notes would be expected to be at AAA (sf).

A-BEST 10:
Class A Notes risk sensitivity:
-- 100% LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 100% LGD, expected rating of AAA (sf)
-- 50% increase in PD and 100% LGD, expected rating of AAA (sf)

Class B Notes risk sensitivity:
-- 100% LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 100% LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 100% LGD, expected rating of AA (high) (sf)

Class C Notes risk sensitivity:
-- 100% LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 100% LGD, expected rating of AA (sf)
-- 50% increase in PD and 100% LGD, expected rating of AA (sf)

Class D Notes risk sensitivity:
-- 100% LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 100% LGD, expected rating of AA (sf)
-- 50% increase in PD and 100% LGD, expected rating of AA (sf)

A-BEST 12:
Class A Notes risk sensitivity:
-- 100% LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 100% LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 100% LGD, expected rating of AA (sf)

Class B Notes risk sensitivity:
-- 100% LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 100% LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 100% LGD, expected rating of BBB (sf)

A-BEST 14:
Class A Notes risk sensitivity:
-- 100% LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 100% LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 100% LGD, expected rating of AA (sf)

Class B Notes risk sensitivity:
-- 100% LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 100% LGD, expected rating of AA (sf)
-- 50% increase in PD and 100% LGD, expected rating of A (high) (sf)

Class C Notes risk sensitivity:
-- 100% LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 100% LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 100% LGD, expected rating of BBB (sf)

Class D Notes risk sensitivity:
-- 100% LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BB (sf)
-- 25% increase in PD and 100% LGD, expected rating of BB (sf)
-- 50% increase in PD and 100% LGD, expected rating of B (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 and US regulations only.

Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date:
A-BEST 10: 8 October 2014
A-BEST 12: 10 August 2015
A-BEST 14: 16 May 2016

DBRS Ratings Limited
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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.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.