Press Release

DBRS Morningstar Upgrades Rating on Clara Sec. S.r.l. Following Amendment

Consumer/Commercial Leases

January 24, 2023

DBRS Ratings GmbH (DBRS Morningstar) upgraded its rating on the Class A Notes issued by Clara Sec. S.r.l. (the Issuer) to A (high) (sf) from A (sf) following a transaction amendment (the Amendment).

The rating addresses the timely payment of interest and the ultimate repayment of principal by the final maturity date in October 2044.

The rating upgrade follows a transaction review upon the execution of an amendment extending the revolving period by an additional 36 months to January 2026 from January 2023, which is effective on 24 January 2023. Additionally, the upgrade is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the January 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the receivables, considering the updated vintage performance data received in the context of the Amendment;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (high) (sf) rating level; and
-- No purchase termination events, breach of concentration limits, or trigger events to date.

The transaction is a revolving securitisation of unsecured consumer loans granted by Intesa Sanpaolo SpA (ISP) to individuals residing in Italy. The transaction closed in June 2020 and was structured with a revolving period that is now scheduled to end in January 2026. During this period, ISP may sell new receivables to the Issuer subject to certain conditions, limitations, and purchase termination events. During the amortisation period, the notes will be repaid according to a formula redemption amount; however, if a pass-through condition materialises (i.e., the cumulative default ratio exceeds 10%), excess spread will also be used to pay down principal on the notes.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS Morningstar’s expectations. As of the November 2022 cut-off date, loans two to three months in arrears represented 0.1% of the outstanding portfolio balance while loans more than three months in arrears represented 0.5%. The gross cumulative default ratio was equal to 0.6% of the initial portfolio balance (including additional portfolios).

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar updated its base case PD to 3.0% from 5.0% and maintained its base case LGD at 85.0% based on updated historical default and recovery data from ISP.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio and the cash credited on the investment account during the revolving period provide credit enhancement. As of the January 2023 payment date, credit enhancement to the Class A Notes was 10.8%, down from 11.5% at the closing date. DBRS Morningstar considered the potential further decrease of credit enhancement in its analysis.

The transaction benefits from an amortising cash reserve, available to cover shortfalls on senior fees, expenses, and interest payments on the Class A Notes. The reserve is currently at its target level of EUR 127.0 million, which is equal to 2.0% of the Class A Notes’ outstanding balance.

An additional cash reserve will also be funded if DBRS Morningstar’s Long Term Critical Obligations Rating (COR) on ISP falls below a certain threshold. The target will be EUR 60.0 million multiplied by the ratio between the current and the initial portfolio balance.

ISP acts as the account bank for the transaction. Based on the account bank reference rating A (low) on ISP (one notch below its DBRS Morningstar Long Term COR of “A”), 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 rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact 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.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the rating are the “Master European Structured Finance Surveillance Methodology” (21 December 2022), https://www.dbrsmorningstar.com/research/407695/master-european-structured-finance-surveillance-methodology, and the “Rating European Consumer and Commercial Asset-Backed Securitisations” (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

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 surveillance section of 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 continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

DBRS Morningstar has conducted a review of the transaction’s legal documents provided in the context of the Amendment. A review of any other transaction’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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/401817/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 this rating include investor reports provided by Banca Finanziaria Internazionale S.p.A.; loan-level data provided by the European DataWarehouse GmbH; as well as servicer reports, additional information, and the following historical performance data from ISP:
-- Quarterly static default data from Q1 2016 until Q3 2022, split by SAE 600 and SAE 614-615;
-- Yearly static recovery data from 2000 to 2021 on the total book;
-- Quarterly dynamic arrears data from Q1 2013 to Q3 2022, split by SAE 600 and SAE 614-615; and
-- Static prepayment rates by quarterly vintages from Q1 2016 to Q3 2022, split by SAE 600 and SAE 614-615.

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 this rating 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 action on this transaction took place on 24 March 2022, when DBRS Morningstar confirmed its A (sf) rating on the Class A Notes.

The lead analyst responsibilities for this transaction have been transferred to Pascale Kallas.

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):
-- 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.
-- The base case PD and LGD of the current pool of loans for the Issuer are 3.0% and 85.0%, 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, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at A (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to A (sf).

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

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Pascale Kallas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 June 2020

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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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