Press Release

DBRS Morningstar Finalises Provisional Ratings on Sunrise SPV 93 S.r.l. - Sunrise 2021-2

Consumer Loans & Credit Cards

October 19, 2021

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes (collectively, the Rated Notes) issued by Sunrise SPV 93 S.r.l. - Sunrise 2021-2 (the Issuer):

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

DBRS Morningstar does not rate the Class M Notes also issued in the transaction.

The rating of the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal on or before the legal final maturity date. The ratings of the Class B, Class C, Class D, and Class E Notes address the ultimate payment of interest but the timely payment of scheduled interest when they become the senior-most tranche and the ultimate repayment of principal on or before the legal final maturity date.

The transaction is a securitisation of fixed-rate consumer, auto, and other purpose loans granted by Agos Ducato S.p.A. (the originator and servicer) to private individuals residing in Italy.

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.
-- The originator’s financial strength and capabilities with respect to originations, underwriting, and servicing.
-- DBRS Morningstar’s operational risk review of the originator, 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 on the Republic of Italy, currently 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 proceeds of the Class M Notes at closing also funded the cash reserve, payment interruption risk reserve and expenses, in addition to the purchase of receivables.

The transaction includes a 12-month revolving period. 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 in separate interest and principal priorities of payments and benefits from a non-amortising EUR 4,220,257 payment interruption risk reserve and an amortising cash reserve starting at EUR 4,220,257, which would be subsequently replenished through the transaction interest waterfalls to the target amount of 2.5% of non-defaulted loan balances, subject to a floor of EUR 4,220,257. Both reserves were initially funded with the proceeds of the Class M Notes and can be used to cover senior expenses, swap costs, and interest payments on the Rated Notes. The cash reserve can be further used to replenish the payment interruption risk reserve and offset defaulted receivables. Principal funds can also be re-allocated to cover senior expenses, swap costs, and interest payments on the Rated Notes if the interest collections and the above reserves are not sufficient.

The transaction further benefits from a non-amortising rata posticipata reserve to supplement interest amounts not made by borrowers during the payment holiday. This reserve will be funded through the transaction interest waterfalls if specific thresholds are breached, and released when the threshold breach is cured.

At the end of revolving period, the notes will be repaid on a fully sequential basis.

COUNTERPARTIES
Crédit Agricole Corporate and Investment Bank (CA-CIB) acts as both the account bank and swap counterparty for the transaction. Based on DBRS Morningstar’s private rating on CA-CIB, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank and the swap provider to be consistent with the ratings assigned to the Rated Notes.

PORTFOLIO ASSUMPTIONS, COVID-19 CONSIDERATIONS, AND KEY DRIVERS
As the originator has a long operating history of consumer and auto loan lending in Italy, its performance data is considered as a benchmark for meaningful detailed vintage analysis. DBRS Morningstar elected to revise its assumption of lifetime expected gross default to 6.69%, reflecting the long and improving historical data and the proposed concentration limits during the revolving period.

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 asset-backed security (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 this transaction, DBRS Morningstar assumed a moderate decline in the expected recovery rate.

The DBRS Morningstar Sovereign group released 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 reports 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 17 June 2020, DBRS Morningstar published commentaries 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.

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 the 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 DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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, Banca Akros SpA, and CA-CIB.

DBRS Morningstar received quarterly static default data from Q1 2004 to Q2 2021, quarterly static recovery data from Q1 2001 to Q2 2021, monthly dynamic arrears and default data from June 2008 to June 2021, and static prepayment rates by annual vintages from 2003 to 2021. DBRS Morningstar also received a set of stratification tables for the loan pool as of 31 August 2021 and its related contractual amortisation profile.

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.

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 ratings, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the ratings:

-- Probability of Default (PD) used: expected PD of 6.69%, a 25% and 50% increase on the expected PD.
-- Loss Given Default (LGD) used: expected LGD of 87.8%, a 25% increase on the expected 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.

DBRS Morningstar concludes that the expected ratings under the five stress scenarios are:
-- Class A Notes: AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (sf)
-- Class B Notes: A (low) (sf), BBB (high) (sf), A (sf), A (low) (sf), BBB (high) (sf)
-- Class C Notes: BBB (sf), BB (high) (sf), BBB (high) (sf), BBB (low) (sf), BB (sf)
-- Class D Notes: BB (sf), BB (high) (sf), BBB (low) (sf), BB (sf), B (sf)
-- Class E Notes: B (high) (sf), B (low) (sf), BB (low) (sf), 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: Sofia Borysko, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 4 October 2021

DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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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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