Press Release

DBRS Morningstar Assigns Ratings to Golden Bar (Securitisation) S.r.l. - Series 2022-1

Consumer Loans & Credit Cards

May 30, 2022

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings of A (sf) and A (low) (sf) to the Class A-2022-1 Asset-Backed Variable Funding Fixed Rate Notes (the Class A Notes) and Class B-2022-1 Asset-Backed Variable Funding Fixed Rate Notes (the Class B Notes), respectively, issued by Golden Bar (Securitisation) S.r.l., Series 2022-1 (the Issuer). DBRS Morningstar does not rate the Class Z-2022-1 Asset-Backed Variable Funding Fixed Rate Notes (the Class Z Notes), also issued in the context of 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 in December 2044. The rating on the Class B Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal maturity date in December 2044 while subordinated to the Class A Notes, but the timely payment of interest when they are the senior-most tranche, in accordance with the Issuer’s default definition provided in the transaction documents.

The transaction represents the issuance of the Class A and Class B Notes (collectively, the Rated Notes), as well as the Class Z Notes (together with the Rated Notes, the Notes), initially backed by a pool of approximately EUR 246.7 million of fixed-rate receivables related to Italian salary- and pension-assignment as well as payment delegation loans granted by Santander Consumer Bank S.p.A. (SCB, the Originator or the Servicer) to individuals residing in Italy. The transaction is structured with a 24-month ramp-up period until the May 2024 payment date (excluded), during which the Issuer may purchase new receivables, provided that certain conditions set out in the transaction documents are satisfied.

The ratings are based on DBRS Morningstar’s review of 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.
-- SCB’s capabilities with respect to originations, underwriting, servicing, and its financial strength.
-- 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 and the reasonable changes during the ramp-up period permitted according to the transaction documents.
-- DBRS Morningstar’s sovereign rating of the Republic of Italy at BBB (high) with a Stable trend.
-- 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.

The transaction includes a 24-month ramp-up period during which the Originator may offer additional receivables that the Issuer will purchase provided that certain conditions are met, including that eligibility criteria and concentration limits set out in the transaction documents are satisfied and that the issuer has sufficient funds to pay the purchase price. The Issuer will finance the purchase of subsequent portfolios either through portfolio collections or via additional Notes subscriptions, maintaining the initial subordination levels equal to 10% and 5% for the Class A and Class B Notes, respectively. The programme limit of the variable funding notes is EUR 800,000,000 on aggregated basis.

The ramp-up period may early terminate if certain events occur, including the breach of specific performance ratios or concentration limits. The failure to transfer subsequent portfolios for three consecutive payment dates or the occurrence of a servicer termination event will also trigger the early termination of the ramp-up period.

TRANSACTION STRUCTURE

The transaction allocates payments through a combined interest and principal priority of payments. The repayment of the Rated Notes will begin after the ramp-up period, on a fully sequential basis. However, if collections are not used to purchase additional portfolios, the Rated Notes may potentially be repaid even during the ramp-up period, but maintaining the initial subordination levels.

The transaction benefits from a cash reserve fully funded at issue date via a subordinated loan provided by SCB. The cash reserve can be used to cover senior costs and interest on the Rated Notes, thus providing liquidity support during the life of the transaction. The reserve amortises in line with the Rated Notes and has to be maintained at 1.7% of their aggregated principal amount outstanding, with a floor at EUR 1,000,000. The cash reserve target will step up to 2.5% if the rating of the Servicer’s owner, Santander Consumer Finance S.A. (SCF), falls below BBB, or if SCF ceases to own at least 75% of the share capital of SCB.

A set-off reserve is expected to be funded by SCB via a further advance under the subordinated loan if the rating of SCF falls below BBB or if SCF ceases to own at least 75% of the share capital of SCB. The set-off reserve is designed to mitigate the retention risk deriving from early termination of loans whose financed amount contains capitalised start-up fees and upfront costs.

The transaction is naturally hedged with respect to interest rate risk, as both the notes and the portfolio pay a fixed rate of interest.

COUNTERPARTIES

Banco Santander S.A., Milan Branch acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of the account bank, 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 bank to be consistent with the ratings assigned, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction’s structure in Intex DealMaker.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Social (S) Factors and Governance (G) Factors

The high exposure to public-sector employees, pensioners, and civil servants makes the transaction dependent on the creditworthiness of the Italian sovereign. DBRS Morningstar considers some of the key drivers behind the latest rating action on Italy – namely Human Capital and Human Rights (S) and Institutional Strength, Governance & Transparency (G) – to be significant rating factors. According to the International Monetary Fund World Economic Outlook, Italy’s GDP per capita of USD 35,473 in 2021 was low compared with its euro area peers. At the same time, Italy ranked in the 60.6 and 67.3 percentiles for Rule of Law and Government effectiveness, respectively, in 2020 according to the World Bank indicators. DBRS Morningstar took these factors into account in the “Economic Structure and Performance”, “Fiscal Management and Policy”, and “Political Environment” building blocks of its “Global Methodology for Rating Sovereign Governments”.

Credit rating actions on the Republic of Italy are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of the Republic of Italy are discussed separately at https://www.dbrsmorningstar.com/issuers/17689.

There were no Environmental factor(s) that had a significant or relevant effect on the credit analysis

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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” (29 October 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.

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 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 the Originator directly or through the arranger, Credit Agricole Corporate & Investment Bank, Milan Branch.

DBRS Morningstar received the following data and information, split by product type (salary assignment, pension assignment and payment delegation) and type of employer (public, para-public and private):
-- Static quarterly default data from Q1 2011 to Q3 2021,
-- Static quarterly recovery data from Q1 2011 to Q3 2021,
-- Dynamic monthly prepayment data from January 2012 to January 2022,
-- Static monthly prepayment data from January 2011 to December 2021,
-- Dynamic delinquency data from June 2012 to March 2022

DBRS Morningstar was also provided with detailed loan-by-loan information and stratification tables of the outstanding portfolio as at 5 May 2022 as well as the related amortisation schedule.

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.

Sensitivity Analysis: 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):

-- Probability of default (PD) used: Expected PD of 19.8% and 14.5% for the A (sf) and A (low) (sf) rating scenario, respectively, and a 25% and 50% increase on the applicable PD.
-- Recovery rate used: Expected recovery rate of 39.8% and 58.3% for the A (sf) and A (low) (sf) rating scenario, respectively.
-- Loss given default (LGD) used: Expected LGD of 60.2% and 41.7% for the A (sf) and A (low) (sf) rating scenario, respectively, and 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 (low) (sf), A (low) (sf), A (low) (sf), A (low) (sf), A (low) (sf), A (low) (sf), A (low) (sf), BBB (high) (sf).
-- Class B Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (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: 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: Christian Aufsatz, Managing Director
Initial Rating Date: 30 May 2022

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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.

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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