DBRS Morningstar Takes Rating Actions on Two Alba Leasing Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Alba 9 SPV S.r.l. and Alba 10 SPV S.r.l. (the Issuers or A9 and A10, respectively):

A9:
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class C Notes upgraded to AA (high) (sf) from AA (low) (sf)

The rating on the Class B Notes addresses the timely payment of interest and ultimate payment of principal by the final maturity date. The rating on the Class C Notes addresses the ultimate payment of interest and principal by the final maturity date in accordance with the Issuer’s default definition provided in the transaction documents (i.e., the timely payment of interest only when they become the most-senior tranche).

A10:
-- Class A2 Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (high) (sf)
-- Class C Notes upgraded to AA (sf) from A (low) (sf)

The rating on the Class A2 Notes addresses the timely payment of interest and ultimate payment of principal by the final maturity date. The ratings on the Class B and Class C Notes address the ultimate payment of interest and principal by the final maturity date in accordance with the Issuer’s default definition provided in the transaction documents (i.e., the timely payment of interest only when they become the most senior tranche).

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the latest payment date for each transaction (June 2021 for A9 and July 2021 for A10);
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining 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.

A9 and A10 are securitisations of financial lease receivables granted by Alba Leasing S.p.A. (Alba Leasing) to corporates, small businesses, and individual enterprises with registered offices in Italy. Financial leases typically provide for an option for the lessee to acquire the asset upon payment of the last instalment (which incorporates the assets’ residual value). In this transaction, the securitised receivables do not include the residual value. Alba Leasing also services the collateral portfolios, with Banca Finanziaria Internazionale S.p.A. (Banca Finint) appointed as backup servicer in both transactions.

PORTFOLIO PERFORMANCE
As of the latest available portfolio cut-off dates (May 2021 for A9 and June 2021 for A10), delinquencies were low:

-- A9: leases with two to three months arrears were 0.00%, while 90+ days arrears were 0.10%
-- A10: leases with two to three months arrears were 0.02%, while 90+ days arrears were 0.00%

Despite low arrears, a significant portion of both outstanding portfolios was still under a coronavirus-related payment holiday: 20.4% and 22.9% for A9 and A10, respectively, as reported by Alba Leasing.

The gross cumulative default ratio for A9 and A10 was equal to 3.6% and 2.6% of the respective initial portfolio balance (up from 3.3% and 2.3% as of the portfolio cut-off considered for the latest annual review of the transactions, i.e. August 2020 for A9 and September 2020 for A10).

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and maintained its base case annualised PD assumptions. Particularly, DBRS Morningstar assumed an annualised PD of 2.4% for vehicles leases; 2.7% for equipment leases; 1.7% for real estate leases; and 4.9% for air, naval, and train leases.
Additionally, DBRS Morningstar applied additional adjustments in the context of the current coronavirus pandemic. DBRS Morningstar applied these adjustments to borrowers in certain industry sectors. DBRS Morningstar maintained the base case lifetime LGD at 57.0%.
CREDIT ENHANCEMENT

Overcollateralisation of the outstanding collateral portfolio provides credit enhancement to the rated notes. As of the latest payment dates, credit enhancement levels were as follows:

A9:
-- Class B Notes: 74.6%, up from 59.2% as of the September 2020 payment date
-- Class C Notes: 45.8%, up from 36.3% as of the September 2020 payment date

A10:
-- Class A2 Notes: 67.3%, up from 56.5% as of the October 2020 payment date
-- Class B Notes: 42.1%, up from 35.0% as of the October 2020 payment date
-- Class C Notes: 27.5%, up from 22.6% as of the October 2020 payment date

The increase in credit enhancement was the main driver behind the rating upgrades in both transactions.

The transactions benefit from an amortising cash reserve (the Debt Service Reserve), which provides liquidity support and is available to cover shortfalls on senior fees, expenses, and interest on the rated notes payments (with respect to the Class C Notes, only prior to the occurrence of performance-related interest subordination events). The reserves are currently at their target (and floor) levels: EUR 4.8 million and EUR 4.1 million for A9 and A10, respectively.

Citibank N.A./Milan Branch acts as the account bank in both transactions. Based on DBRS Morningstar’s private rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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 ABS transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

For these transactions, 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, 34.2% and 36.3% of the outstanding portfolio balance of A9 and A10, respectively, belonged to industries classified in mid-high and high-risk economic sectors, respectively, which leads the underlying one-year PDs to be multiplied by 1.5 times (x) and 2.0x, respectively, as per the commentaries mentioned below.

In addition, DBRS Morningstar conducted additional sensitivity analysis to determine that the transactions benefit from sufficient liquidity support to withstand high levels of payment holidays in the portfolios.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 8 May 2020 and on 18 May 2020, DBRS Morningstar published commentaries outlining how the coronavirus is likely to affect the DBRS Morningstar-rated ABS and Structured Credit transactions, respectively, in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect, 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 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 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 the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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.

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 actions.

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 these ratings include investor reports provided by Banca Finint, servicer reports and additional information provided by Alba Leasing, 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 ratings, 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 these transactions were as follows:
-- A9: on 13 April 2021 DBRS Morningstar discontinued its AAA (sf) rating on the Class A2 Notes. Prior to that, on 23 October 2020, DBRS Morningstar confirmed its ratings on the Class A2 and Class B Notes at AAA (sf) and AA (high) (sf), respectively, and upgraded the rating on the Class C Notes to AA (low) (sf) from A (sf).
-- A10: on 27 July 2021 DBRS Morningstar discontinued its AAA (sf) rating on the Class A1 Notes. Prior to that, on 26 November 2020, DBRS Morningstar confirmed its ratings on the Class A1, Class A2, Class B and Class C Notes at AAA (sf), AAA (sf), AA (high) (sf) and A (low) (sf), respectively.

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):

-- 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.
-- Product-specific PD used: base case annualised PD of 2.4% for vehicles leases; 2.7% for equipment leases; 1.7% for real estate leases; and 4.9% for air, naval, and train leases.
-- The base case lifetime PD and LGD of the current pool of leases for the Issuer are 10.4% and 57.0%, respectively, for A9, and 10.8% and 57.0%, respectively, for A10.

-- For A9, lifetime PDs of 32.3% and 28.6% at the AAA (sf) and AA (high) (sf) rating levels, respectively.
-- For A10, lifetime PDs of 33.8%, 30.6% and 29.7%, at the AAA (sf) and AA (high) (sf) and AA (sf) rating levels, 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, taking into consideration A9, if the LGD increases by 50%, the rating of the Class B Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class B Notes would be expected remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class B Notes would be expected to remain at AAA (sf).

A9
Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

A10
Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

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

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: http://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, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date (A9): 12 October 2017
Initial Rating Date (A10): 29 November 2018

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: http://www.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
--- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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 European Structured Finance Transactions Methodology (30 July 2021), https://www.dbrsmorningstar.com/research/382486/rating-european-structured-finance-transactions-methodology.
-- 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.
-- Rating CLOs Backed by Loans to European SMEs (28 June 2021) and SME Diversity Model v2.5.0.0, https://www.dbrsmorningstar.com/research/380640/rating-clos-backed-by-loans-to-european-smes.
-- Rating CLOs and CDOs of Large Corporate Credit (8 February 2021), https://www.dbrsmorningstar.com/research/373423/rating-clos-and-cdos-of-large-corporate-credit.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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.