DBRS Morningstar Confirms Ratings on Marzio Finance S.r.l. - Series 4-2018

DBRS Ratings GmbH (DBRS Morningstar) confirmed the following ratings on the notes issued by Marzio Finance S.r.l. – Series 4-2018 (the Issuer):

-- Class A Notes at AA (sf)
-- Class B Notes at A (high) (sf)

The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date falling in August 2043. The rating on the Class B Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults and losses as of the September 2019 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

Marzio Finance S.r.l. is a securitisation programme, of which the Series 4-2018 notes are part. The notes are backed by a pool of receivables related to salary and pension assignment loans as well as payment delegation loans granted by IBL – Istituto Bancario del Lavoro S.p.A. (IBL) to Italian employees and pensioners. The portfolio is serviced by IBL Servicing S.p.A. (a company fully owned by IBL), with IBL appointed as sub-servicer and Zenith Service S.p.A. as backup servicer.

The Series 4-2018 receivables are segregated from other series’ receivables that may be assigned to back the issuance of further series. The transaction closed in November 2018, when the SPV issued one class of floating-rate notes, one class of fixed-rate notes and one class of variable return notes, namely the Class A, Class B and Class J Notes.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS Morningstar’s initial expectations. As of August 2019, loans that were two- to three-months in arrears represented 0.2% of the outstanding portfolio balance, while the 90+ delinquency ratio was 0.5%. The gross cumulative default ratio stood at 0.7% of the initial portfolio balance.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 6.9% and 14.7%, respectively.

CREDIT ENHANCEMENT
As of the September 2019 payment date, credit enhancement to the Class A and Class B Notes was 23.4% and 5.6%, up from 20.3% and 4.4%, respectively at the DBRS Morningstar initial rating in November 2018. Credit enhancement to the Class A Notes is provided by the overcollateralisation of the outstanding collateral portfolio including the additional reserve. Credit enhancement to the Class B Notes is provided by the overcollateralisation of the outstanding collateral portfolio.

The transaction benefits from two reserves, namely the liquidity reserve and the additional reserve. The liquidity reserve is available to cover any shortfall on senior fees, expenses and interest on the rated notes. It is currently at its target level of EUR 3.6 million and will start amortising when the rated notes amortisation is greater than 50% of their initial balance. The additional reserve is available to cover any shortfall on senior fees, expenses and interest on the rated notes, to top-up the liquidity reserve and to repay principal on the Class A Notes. It is currently at its target level of EUR 4.9 million and it is sized at 1.5% of the outstanding collateral portfolio.

Citibank NA, Milan branch acts as the account bank for the transaction. Based on the private rating of Citibank NA, Milan branch, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The transaction structure was analysed in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”.

DBRS Morningstar 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include payment, investor and servicer reports provided by IBL and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

This is the first rating action on this transaction since the initial rating date on 21 November 2018.
The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- DBRS Morningstar 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 loans for the Issuer are 6.9% and 14.7%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. Taking the Class A Notes as an example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (low) (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 fall to A (high) (sf).

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

For further information on DBRS Morningstar 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 GmbH are subject to EU and US regulations only.

Lead Analyst: Daniele Canestrari, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 21 November 2018

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main - Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions

A description of how DBRS Morningstar 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.