Press Release

DBRS Morningstar Confirms Ratings on Alchera SPV S.r.l.

Structured Credit

February 05, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the notes issued by Alchera SPV S.r.l. (the Issuer), as follows:

-- Series A-2013 Notes confirmed at AAA (sf)
-- Series A-2017 Notes confirmed at AAA (sf)
-- Series M-2017 Notes confirmed at AA (high) (sf)

The ratings on the Series A-2013 Notes and Series A-2017 Notes (together, the Series A Notes) address the timely payment of interest and the ultimate payment of principal by the final maturity date in November 2048. The rating on the Series M-2017 Notes (Series M Notes) addresses the ultimate payment of interest and ultimate payment of principal by the final maturity date in November 2050.

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 November 2020 payment date.
-- The one-year base case probability of default (PD) and default and recovery rates on the receivables.
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Alchera SPV S.r.l. is a multi-originator cash flow securitisation collateralised by a portfolio of mortgage and nonmortgage loans originally granted to Italian small and medium-size enterprises, entrepreneurs, artisans, and self-employed individuals by Banca Cassa di Risparmio di Savigliano S.p.A. (CR Savigliano), Cassa di Risparmio di Saluzzo S.p.A. (CR Saluzzo), and Banca Mediocredito del Friuli Venezia Giulia S.p.A. (MCFVG).
The transaction closed in June 2013 but was restructured in February 2017. Following the restructuring, CR Saluzzo withdrew from the transaction and Banca Alpi Marittime Credito Cooperativo Carrù Società Cooperativa per Azioni (BAM) and Cassa di Risparmio di Cento (CR Cento) were incorporated as new originators. CR Savigliano, MCFVG, BAM, and CR Cento currently service their respective portion of the portfolio. The same four entities also act as back-up servicers, and are available to support each other in the management of collection activities, if necessary.

Series A-2017 Notes replicate the same features of Series A-2013 Notes, as both series of notes are pari passu and pro rata with respect to interest and principal payments. Series M-2017 Notes are subordinated to Series A Notes, and amortisation is fully sequential.

The transaction features four separate priorities of payments, one for each originator, processing the single portfolio available funds. Full cross-collateralisation would only take place when certain conditions are met.

PORTFOLIO PERFORMANCE

As of the September 2020 cut-off date, delinquencies were low, with loans two to three months and 90+ days in arrears representing 0.02% and 0.14% of the outstanding portfolio balance, respectively, slightly down from 0.04% and 0.56% as of the September 2019 cut-off date. Despite arrears being low, a significant portion of the portfolio currently benefits from payment holidays, as further detailed in the following paragraphs. As of September 2020, the servicers did not report any defaulted loan.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS

DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its lifetime default and recovery assumptions on the outstanding portfolio to 60.0% and 43.6%, respectively, at the AAA (sf) rating level, and to 55.5% and 48.7%, at the AA (high) (sf) rating level. The base case one-year PD has been maintained at 4.3%; however, following coronavirus-related adjustments, DBRS Morningstar updated the weighted-average base case one-year PD to 5.5%.

CREDIT ENHANCEMENT

Overcollateralisation of the outstanding collateral portfolio provides credit enhancement to the rated notes. In the case of the Series A Notes, credit enhancement is also provided by the four amortising cash reserves and the four nonamortising cash reserves. As of the November 2020 payment date, credit enhancement to the Series A and Series M Notes was 84.9% and 53.8%, respectively, up from 70.8% and 45.3%, respectively, as of the November 2019 payment date.

The four amortising cash reserves, one for each portfolio, provide liquidity support and are available to cover shortfalls on senior fees, expenses, and interest payments on the Series A Notes. The aggregate balance of the cash reserves is currently at its target and floor level of EUR 5.6 million (1.0% of the initial balance of the Series A Notes). As the CR Cento portfolio was already able to repay in full its portion of the Series A Notes, excess funds from its priority of payments are currently being provisioned in the respective cash reserve account, as amortisation of the Series M Notes cannot start before the aggregate of the Series A Notes are entirely redeemed.

The four nonamortising additional cash reserves provide liquidity support and are available to cover shortfalls on senior fees, expenses, and interest payments on the Series A and Series M Notes. The aggregate balance of the additional cash reserves is currently at its target level of EUR 11.1 million (2% of the initial balance of the Series A Notes).

The cash reserves and the additional cash reserves will be released from the structure as soon as the aggregate of the Series A Notes are fully repaid.

There are detrimental event triggers, both on a single portfolio and at an aggregate level, which would cause excess spread to be trapped in the transaction’s accounts if the single portfolio or aggregate cumulative defaults rise above a certain level.

There is a disequilibrium event trigger which would cause excess spread to be paid into the relevant principal amortisation reserve account, if one or more portfolios are able to repay in full their portion of the Series M Notes, while others are not.

Finally, there are several cross-collateral events which, upon deterioration of the transaction performance, would cause the four separate priorities of payments to collapse into a unique cross-collateral order of priority.

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

DBRS Morningstar analysed the transaction structure in its proprietary cash flow engine.

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 continue to increase in the coming months for many SME transactions, some meaningfully. The rating is 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. As per DBRS Morningstar’s assessment, 28.5% of the outstanding portfolio balance belonged to industries classified in mid-high- and high-risk economic sectors, which leads to the underlying one-year PDs to be multiplied by 1.5 and 2.0, respectively, as per the commentaries mentioned below.

In addition, DBRS Morningstar conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio. Reported payment holidays were considered in the asset analysis. As of 30 September 2020, around 43.1% of the portfolio balance benefitted from a coronavirus-related payment moratorium. The majority of payment suspensions are on the whole instalment (principal plus interest).

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 28 January 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/372843/dbrs-morningstar-releases-updated-global-macroeconomic-scenarios 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.

On 18 May 2020, DBRS Morningstar released its “European Structured Credit Transactions’ Risk Exposure to Coronavirus (COVID-19) Effect” commentary, where DBRS Morningstar discussed the overall risk exposure of the SME sector to the coronavirus and provided a framework for identifying the transactions that are more at risk and likely to be affected by the fallout of the pandemic on the economy. For more details, please see: https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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 the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

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 the “Rating CLOs Backed by Loans to European SMEs” (30 September 2020).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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 at: https://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 investor reports provided by Accounting Partners S.p.A., servicer reports and additional information provided by CR Savigliano, MCFVG, BAM, and CR Cento, and loan-level data provided by the European DataWarehouse GmbH.

DBRS Morningstar did not rely upon third-party due diligence in order 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.

The last rating actions on this transaction took place on 6 February 2020, when DBRS Morningstar confirmed its AAA (sf) ratings on the Series A-2013 and A-2017 Notes, and upgraded its ratings on the Series M-2017 Notes to AA (high) (sf) from A (high) (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.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):

-- PD Rates Used: Base case PD of 4.3%, a 10% and 20% increase of the base case PD.

-- Recovery Rates Used: Base case recovery rate of 43.6% at the AAA (sf) stress level for the Series A Notes and a base case recovery rate of 48.7% at the AA (high) (sf) stress level for the Series M Notes, a 10% and 20% decrease in the base case recovery rates.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes at AAA (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would also lead to a confirmation of the Series A Notes at AAA (sf).

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Series M Notes at AA (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would also lead to a confirmation of the Series M Notes at AA (high) (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 27 June 2013

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main – Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at https://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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

Download This Press Release