DBRS Confirms Ratings of Sunrise S.r.l. - Series 2017-1

DBRS Ratings Limited (DBRS) confirmed its ratings on the notes issued by Sunrise S.r.l. - Series 2017-1 as follows:

-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf) (together with the Class A1 Notes, the Class A Notes) and
-- Class M Notes confirmed at AA (low) (sf)

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The overall portfolio performance as of the February 2018 payment date, in particular with regards to low levels of cumulative net loss and delinquencies;
-- No Early Termination Event has occurred; and
-- The current levels of credit enhancement (CE) available to the rated notes to cover expected portfolio losses in the respective stress scenarios.

The ratings of the Class A and Class M Notes address the timely payment of interest and the ultimate repayment of principal on or before the Final Maturity Date in April 2041.

Sunrise S.r.l. - Series 2017-1 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 1,299.0 million portfolio, as of the February 2018 payment date, consisted of auto loans (18.3% of the outstanding portfolio balance), personal loans (74.9%), furniture loans (3.8%) and special-purpose loans (3.0%). Of the portfolio, 65.2% 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
As of February 2018, the gross cumulative default ratio was 0.3% of the aggregated original portfolio, of which 0.6% has been recovered so far. The 90+ delinquency ratio was 0.5%.

REVOLVING PERIOD
The transaction envisages an initial 12-month revolving period that is expected to mature on 27 March 2018, after which the transaction will begin to amortise. Concentration limits are in place to mitigate any negative evolution of the portfolio and performance triggers are included in the Revolving Period Termination Events. To date, no triggers have been breached.

CREDIT ENHANCEMENT
CE is provided by the subordination of the respective junior obligations and the cash reserve through a Principal Deficiency Ledger mechanism. CE for the Class A Notes increased to 42.7% in February 2018 from 40.2% at closing, while CE for the Class M Notes increased to 25.6% from 23.1%. This increase reflects the increase in the size of the cash reserve up to its target level after closing using excess spread.

The transaction benefits from credit and liquidity support in the form of two reserves. The Payment Interruption Risk Reserve Account is available to cover senior expenses and missed interest payments on the Class A and Class M Notes and has a required balance of EUR 6.47 million. The amortising cash reserve can additionally be used to offset the principal losses of defaulted receivables and has a required balance of EUR 6.47 million, equal to 3% of the initial portfolio. A 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 target levels.

The transaction 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 February 2018 payment date, this condition had not been breached for any transaction.

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

Crédit Agricole Corporate and Investment Bank S.A. (Crédit Agricole CIB) acts as the Swap Counterparty for the transactions. The current private rating of Crédit Agricole CIB is consistent with the First Rating Threshold as 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 ratings 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.

An asset and a 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.

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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

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 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 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.

This press release was amended on 25 April 2018 to include the disclosure: “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 28 March 2017, when DBRS finalised its provisional ratings assigned to the Class A and Class M Notes.

The lead analyst responsibilities for this transaction have been transferred to Matt Albin.

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 these ratings, 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 PD and LGD of the current pool of receivables, excluding sovereign stress are 8.4% and 88.4%, respectively.

For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to decrease to AA (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to AA (low) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to A (high) (sf), ceteris paribus.

Class A 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 (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

Class M Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (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: Matt Albin, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 March 2017

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.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.