Press Release

DBRS Morningstar Finalises Provisional Ratings on Brignole CO 2021 S.r.l.

Consumer Loans & Credit Cards

July 26, 2021

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by Brignole CO 2021 S.r.l. (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at B (high) (sf)
-- Class X Notes at B (low) (sf)

DBRS Morningstar did not assign ratings to the Class F Notes or Class R Notes issued in this transaction.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal maturity date. The ratings on the Class B, Class C, Class D, and Class E Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal maturity date while junior to other outstanding classes of notes, but the timely payment of interest when they are the senior-most tranche, in accordance with the Issuer’s default definition (liquidation) provided in the transaction documents. The rating on the Class X Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal maturity date.

The transaction represents the issuance of Class A, Class B, Class C, Class D, Class E, Class X (together, the Rated Notes), Class F, and Class R Notes (together with the Rated Notes, the Notes) backed by a pool of approximately EUR 275.6 million of fixed-rate receivables related to unsecured Italian consumer loans granted by Creditis Servizi Finanziari S.p.A. (Creditis; the originator, seller and servicer) to individuals residing in Italy. The transaction includes an 18-month revolving period during which time the Issuer will purchase new receivables that the originator may offer provided that certain conditions set out in the transaction documents are satisfied.

The Class X Notes are not collateralised by receivables and entirely rely on excess spread to pay interest and repay principal. Their amortisation with interest funds is expected to be completed in 23 instalments, starting during the revolving period.

DBRS Morningstar based its ratings on the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels that are 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 under which they have invested.
-- Creditis’ capabilities with respect to originations, underwriting, servicing, and financial strength.
-- The appointment of a backup servicer upon closing.
-- 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 seller’s portfolio.
-- The sovereign rating on the Republic of Italy, currently rated BBB (high) with a Negative trend by DBRS Morningstar.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s "Legal Criteria for European Structured Finance Transactions" methodology, the presence of legal opinions that address the true sale of the assets to the Issuer, and the nonconsolidation of the Issuer with the seller.

TRANSACTION STRUCTURE
The transaction includes principal on the Notes being repaid on a fully sequential basis, excluding the Class X Notes’ principal which can only be repaid with interest funds but junior to interest on the Class A to Class F Notes, including the respective PDLs, except interest on the Class R Notes.

The transaction benefits from a cash reserve of EUR 2.7 million funded with part of the proceeds of subscription to the Class X Notes that can be used to cover shortfalls in senior expenses and interest on the Class A to Class E Notes. The Rated Notes pay interest indexed to one-month Euribor plus a margin and the interest rate risk arising from the mismatch between the floating-rate notes and the fixed-rate collateral is hedged through an interest rate cap with an eligible counterparty.

COUNTERPARTIES
BNP Paribas Securities Services SCA/Milan (BNP Milan) is the account bank for the transaction. DBRS Morningstar has a private rating on BNP Milan, which meets DBRS Morningstar’s criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with DBRS Morningstar’s criteria with respect to BNP Milan’s role as account bank.

The transaction is exposed to interest rate risk due to the mismatch between the fixed-rate assets and the floating-rate liabilities. The risk is mitigated by an interest rate cap with an eligible counterparty set on a fixed amortisation schedule of the loans derived assuming a 6% constant prepayment rate. Natixis S.A. (Natixis) is the cap counterparty for the transaction. DBRS Morningstar does not publicly rate Natixis, but maintains a private rating on it and concluded that Natixis meets the minimum requirements to act in this capacity in relation to the ratings assigned. The hedging documents include downgrade provisions consistent with DBRS Morningstar's criteria.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

CORONAVIRUS DISEASE (COVID-19) CONSIDERATIONS
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 asset-backed security (ABS) transactions, some meaningfully. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread 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 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-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.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-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 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 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.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

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).

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.

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 considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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/381451/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for the ratings include Creditis, provided through the transaction arranger, Citigroup Global Markets Limited.

DBRS Morningstar received the following data and information:
-- Monthly dynamic delinquency data from May 2008 to May 2021.
-- Monthly dynamic prepayment data from May 2008 to May 2021.
-- Quarterly static default data from Q2 2008 to Q1 2021.
-- Quarterly static recovery data from Q1 2009 to Q1 2021.

DBRS Morningstar was also provided with detailed stratification tables as of 18 June 2021.

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 newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Guglielmo Panizza.

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 rating (the base case):
-- Expected Default Rate (PD): 3.3 % (excluding sovereign stress), a 25% and 50% increase on the applicable PD.
-- Recovery Rate: 30.0%.
-- Loss Given Default (LGD): 70%, a 25% and 50% increase in the applicable LGD.

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

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AA (sf), AA (sf), AA (high) (sf), AA (sf), A (high) (sf), AA (high) (sf), AA (sf), A (high) (sf)
-- Class B Notes: AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (low) (sf), AA (sf), A (high) (sf), A (low) (sf)
-- Class C Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (sf), A (low) (sf), BBB (high) (sf), BBB (sf)
-- Class D Notes: BBB (high) (sf), BBB (low) (sf), BBB (sf), BBB (low) (sf), BB (sf), BBB (sf), BB (high) (sf), BB (low) (sf)
-- Class E Notes: B (high) (sf), B (sf), B (high) (sf), B (low) (sf), below B (low) (sf), B (low) (sf), below B (low) (sf), below B (low) (sf).
-- Class X Notes: below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (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: Guglielmo Panizza, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 June 2021

DBRS Ratings GmbH
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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.

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