DBRS Morningstar Confirms Rating of Adriano Lease Sec. S.r.l. - Adriano Lease II

DBRS Ratings GmbH (DBRS Morningstar) confirmed the rating of the Class A Notes issued by Adriano Lease Sec. S.r.l. – Adriano Lease II at A (sf).

The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date falling in January 2049.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults and losses as of the October 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 Class A Notes to cover the expected losses at the A (sf) rating level.

Adriano Lease Sec. S.r.l. - Adriano Lease II is a securitisation of lease receivables granted by Mediocredito Italiano S.p.A. (Mediocredito) to corporate clients, small businesses and individual enterprises with their registered offices in Italy. The transaction closed in November 2017, when the special-purpose vehicle issued one senior class of floating-rate notes (the Class A Notes) and one junior class of floating-rate and additional-return notes (the Class B Notes).

With effect from 11 November 2019, Mediocredito was merged by incorporation into Intesa Sanpaolo S.p.A. (Intesa Sanpaolo), which already owned and controlled Mediocredito. As a result of the incorporation, Intesa Sanpaolo now acts as the servicer in the transaction.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS Morningstar’s initial expectations. As of September 2019, loans that were two to three months in arrears represented 0.1% of the outstanding portfolio balance, down from 0.3% in September 2018. The 90+ delinquency ratio was 0.2%, down from 0.4% in September 2018. The gross cumulative default ratio was 1.3%, increasing from 0.4 % in September 2018.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis of the outstanding pool of receivables and has updated its base case PD and LGD assumptions to 19.3% and 82.2%, respectively.

CREDIT ENHANCEMENT
Credit enhancement available to the Class A Notes increases as the transaction continues to deleverage. Overcollateralisation of the outstanding collateral portfolio provides credit enhancement and does not include the cash reserve. As of the October 2019 payment date, credit enhancement to the Class A Notes was 46.1%, up from 37.1% as of the October 2018 payment date.

The transaction structure benefits from an amortising cash reserve, which provides liquidity support and is available to cover any shortfall on senior fees, expenses and interest on the Class A Notes. The reserve is currently at its target level of EUR 25.6 million, which accounts for 1.5% of the Class A Notes’ outstanding balance, and it is floored at EUR 21.5 million.

Intesa Sanpaolo acts as the account bank for the transaction. Based on the account bank reference rating of Intesa Sanpaolo at A (low), one notch below the DBRS Morningstar Long-Term Critical Obligations Rating of “A”, 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 DBRS Morningstar has not received any new legal documents 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 this rating include payment and investor reports provided by Securitisation Services S.p.A., servicer reports provided by Mediocredito 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 this rating 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.

The last rating action on this transaction took place on 29 November 2018, when DBRS Morningstar confirmed the rating of the Class A Notes at A (sf).

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 receivables are 19.3% and 82.2%, 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. 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 of the Class A Notes would be expected to fall 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 fall 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 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: 30 November 2017

DBRS Ratings GmbH
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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.

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
-- Rating CLOs and CDOs of Large Corporate Credit

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.