DBRS Morningstar Assigns Ratings to Asset-Backed European Securitisation Transaction Eighteen S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) assigned the following ratings to the notes issued by Asset-Backed European Securitisation Transaction Eighteen S.r.l. (the Issuer or A-BEST 18 S.r.l.):

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

The rating of the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final legal maturity date. The ratings of the Class B and Class C notes address the ultimate payment of interest and ultimate repayment of principal by the final legal maturity date while junior to other outstanding classes of notes but the timely payment of scheduled interest when they are the senior-most tranche. DBRS Morningstar does not rate the Class M Notes issued in this transaction.

DBRS Morningstar based its ratings on the following analytical considerations:

-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes.
--FCA Bank S.p.A.’s (FCAB, the originator) financial strength and capabilities with respect to originations, underwriting, and servicing.
-- DBRS Morningstar’s operational risk review on FCAB, which is deemed to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the originator’s portfolio.
-- DBRS Morningstar’s sovereign rating of the Republic of Italy at BBB (high) with a Negative trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE

The Issuer is a revolving cash flow securitisation collateralised by a portfolio of performing auto-related financial lease contracts (leasing finanziari) to private individuals and companies in Italy granted and serviced by FCAB. The securitised receivables are financial claims towards the payment of regular instalments by lessees. The final optional instalments that include residual values have not been financed by the transaction.

From the issue date, the transaction includes a six-month revolving period scheduled to end in April 2021. During the revolving period, the originator may offer additional receivables that the Issuer will purchase, provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers, insolvency of the originator, or replacement of the servicer.

The transaction allocates collections on a separate interest and principal priority of payments and benefits from a static EUR 3.15 million cash reserve funded on the issue date through the proceeds of the subscription of the Class M notes. The reserve can be used to cover senior costs and interest on the Class A, B, and C notes (the Rated Notes). On the last payment date or when there are sufficient principal available funds to redeem the Rated Notes, amounts standing to the credit of the cash reserve net of amounts used to cover any interest shortfall can be used to repay the Rated notes.

At the end of revolving period, the notes will be repaid on a fully sequential basis. Both the receivables and the notes pay a fixed interest rate, thus the transaction is naturally hedged against interest rate risk.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.

COUNTERPARTIES
BNP Paribas Securities Services, Milan branch will act as the account bank and paying agent for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services, Milan branch, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to BNP Paribas Securities Services, Milan branch 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.

INFORMATION ON COVID-19
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may increase in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar commentary: https://www.dbrsmorningstar.com/research/360734.

For more information on DBRS Morningstar considerations for European Structured Credit transactions and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar commentary: https://www.dbrsmorningstar.com/research/361098.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

DBRS Morningstar 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 is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found at: http://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include performance data relating to the receivables provided by the originator directly or through the arrangers.

DBRS Morningstar received the following data information, split by lessee type (individuals and companies) and vehicle brand (FCA brand and Jaguar and Land Rover brand):

-- Monthly dynamic arrears data from June 2014 to June 2020;
-- Monthly static default data from June 2014 to June 2020;
-- Monthly static recovery data from June 2014 to June 2020.

In addition, DBRS Morningstar received loan-level characteristics, stratification data, and a contractual amortisation profile as at 24 October 2020.

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

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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings:

-- Probability of default (PD) used: Expected PD of 16.8% for an AA (sf) scenario, 13.6% for an A (high) (sf) scenario, 8.6% for a BBB (high) (sf) scenario, a 25% and 50% increase on the applicable PD.
-- Recovery rate used: Expected recovery rate of 11.3% for an AA (sf) scenario, 11.8% for an A (high) (sf) scenario, 12.7% for a BBB (high) (sf) scenario.
-- Loss given default (LGD) used: Expected LGD of 88.7% for an AA (sf) scenario, 88.2% for an A (high) (sf) scenario, 87.3% for a BBB (high) (sf) scenario, a 25% and 50% increase on the applicable LGD.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase on the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase on the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase on the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase on the expected LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: A (high) (sf), BBB (high) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf).
-- Class B Notes: BBB (high) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (sf), A (low) (sf), BBB (high) (sf), BBB (sf).
-- Class C Notes: BBB (low) (sf), BB (high) (sf), BBB (sf), BB (high) (sf), BB (sf), BBB (sf), BB (high) (sf), BB (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 U.S. regulations only.

Lead Analyst: Anna Dingillo, Senior Analyst
Rating Committee Chair: Tim O’Neil, Managing Director
Initial Rating Date: 11 November 2020

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies

-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating CLOs Backed by Loans to European SMEs and DBRS Morningstar SME Diversity Model 2.4 (30 September 2020), https://www.dbrsmorningstar.com/research/367642/rating-clos-backed-by-loans-to-european-smes.
-- Rating European Structured Finance Transactions Methodology (21 July 2020), https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019), https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375

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