DBRS Confirms Rating on Locat SV S.r.l. - Series 2016

DBRS Ratings Limited (DBRS) confirmed its A (sf) rating on the Class A Notes issued by Locat SV S.r.l. under the Series 2016 (Locat SV 9; the Issuer).

The confirmation follows an annual review of the transaction and is based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of September 2017;
-- Portfolio default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the outstanding collateral portfolio; and
-- The current credit enhancement (CE) available to the Class A Notes to cover the expected losses at the A (sf) rating level.

The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in December 2042.

Locat SV 9 is a securitisation of lease receivables backed by financial lease contracts granted by UniCredit Leasing S.p.A. (UCL) to corporations, small- and medium-sized businesses and individual enterprises with registered offices in Italy. The portfolio is serviced by UCL.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS’s expectations. As of September 2017, the 30-90 day arrears stood at 1.25% of the outstanding collateral portfolio balance, whereas the loans more than 90 days delinquent accounted for 1.09% of the outstanding balance. Cumulative defaulted loans as a percentage of the initial portfolio balance were at 0.53%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding pool of receivables and updated the PD and LGD assumptions on the outstanding collateral portfolio to 16.01% and 83.33% (including sovereign stress adjustment), respectively.

CREDIT ENHANCEMENT
As of September 2017, credit enhancement to the Class A Notes was 34.05%, up from 29.50% at closing. Credit enhancement to the Class A Notes is provided by the overcollateralisation of the outstanding collateral portfolio. The Reserve Fund (Debt Service Reserve), which is available to pay senior fees and expenses and missed interest on the Class A Notes, is currently at its target level of EUR 33.81 million, which accounts for 1.5% of the outstanding balance of the Class A Notes.

BNP Paribas Securities Services, Milan Branch is the Account Bank and UniCredit S.p.A. is the Collection Account Bank for the transaction. The DBRS private ratings on the Account Banks comply with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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.

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 the Servicer’s Settlement Report from UCL, Payments and Investors Reports from Securitisation Services S.p.A. and loan-by-loan 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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Ilaria Maschietto.

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 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 receivables for the Issuer are 16.01% and 83.33% (including sovereign stress adjustment) for the Class A Notes.
-- 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 remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to be downgraded to BBB (high) (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 be downgraded to BBB (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (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 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 November 2016

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

-- Unified Interest Rate Model for European Securitisations
-- 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
-- Rating CLOs and CDOs of Large Corporate Credit

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