DBRS Morningstar Upgrades and Confirms Ratings on Three Alba Leasing Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the Notes issued by Alba 10 SPV S.r.l. (A10), Alba 11 SPV S.r.l. (A11), and Alba 12 SPV S.r.l. (A12):

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

The ratings on the Class B and Class C Notes address the timely payment of interest and the ultimate repayment of principal by the final maturity date.

A11:
-- Class A2 Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (high) (sf)
-- Class C Notes upgraded to AA (sf) from A (high) (sf)

The rating on the Class A2 Notes addresses the timely payment of interest and the ultimate repayment of principal by the final maturity date, while the ratings on the Class B and Class C Notes address the ultimate payment of interest and the ultimate repayment of 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).

A12:
-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from A (high) (sf)

The ratings on the Class A1 and Class A2 Notes address the timely payment of interest and the ultimate repayment of principal by the final maturity date, while the rating on the Class B Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the final maturity date (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 performances, in terms of delinquencies and defaults, as of the latest payment date for each transaction (March 2023 for A11, and April 2023 for A10 and A12);
-- Updated portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current credit enhancement (CE) available to the rated notes to cover the expected losses at their respective rating levels.

The three transactions are securitisation 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 an option for the lessee to acquire the asset upon payment of the last instalment (which incorporates the assets’ residual value). In these transactions, 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 the backup servicer in the three transactions.

PORTFOLIO PERFORMANCE
The three portfolios are performing within DBRS Morningstar’s expectations. Delinquencies are low, with 60 to 90 day and 90+ day arrears ratios as follows:
-- A10: 0.03% and 0.03%, respectively, as of the March 2023 cut-off date,
-- A11: 0.03% and 0.04%, respectively, as of the February 2023 cut-off date, and
-- A12: 0.01% and 0.02%, respectively, as of the March 2023 cut-off date.

The gross cumulative default ratios for A10, A11, and A12 were equal to 3.5%, 2.2%, and 1.0% of the initial portfolio balances, respectively.

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 and LGD assumptions. Particularly, DBRS Morningstar assumed an annualised PD of 2.4% for vehicles and equipment leases; 1.5% for real estate leases; and 10.1% for air, naval, and train leases.
DBRS Morningstar maintained the base case lifetime LGD at 57.0% for all the three transactions.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio provides CE to the rated notes across the three transactions. As of the latest payment dates, CE levels were as follows, compared with the CE levels as of the last rating action for each transaction:

A10:
-- Class B Notes: 92.9%, up from 62.4% as of the July 2022 payment date;
-- Class C Notes: 60.7%, up from 40.8% as of the July 2022 payment date.

A11:
-- Class A2 Notes: 71.9%, up from 49.6% as of the March 2022 payment date;
-- Class B Notes: 49.2%, up from 33.8% as of the March 2022 payment date;
-- Class C Notes: 28.6%, up from 19.5% as of the March 2022 payment date.

A12:
-- Class A1 Notes: 80.2%, up from 65.6% as of the July 2022 payment date;
-- Class A2 Notes: 51.6%, up from 42.2% as of the July 2022 payment date;
-- Class B Notes: 21.4%, up from 17.3% as of the July 2022 payment date.

The three transactions’ structures benefit from amortising cash reserves (debt service reserve), which provide liquidity support to the notes, covering senior expenses and interest payments on the rated notes (only prior to the occurrence of an interest subordination event for A10, with respect to the Class C Notes; for A11, with respect to the Class B and Class C Notes; and for A12, with respect to the Class B Notes). For A10 the reserve is at its floor level. The reserves are currently equal to their target levels of EUR 4.1 million for A10, EUR 6.0 million for A11, and EUR 6.8 million for A12.

Citibank N.A./Milan Branch (for A10 and A11) and BNP Paribas, Succursale Italia (for A12) act as the account banks for the transactions. Based on DBRS Morningstar’s private ratings on the account banks, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transactions structures, DBRS Morningstar considers the risk arising from the exposure to the account banks to be consistent with the ratings assigned to the 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 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.

DBRS Morningstar analysed the transactions structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in these transactions are listed at the end of this press release.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions’ 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/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 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 in order 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:
--A10: on 28 October 2022 DBRS Morningstar discontinued its AAA (sf) rating on the Class A2 Notes. Prior to that, on 19 August 2022, DBRS Morningstar confirmed its rating on the Class A2 Notes at AAA (sf) and upgraded its ratings on the Class B and Class C Notes to AAA (sf) and AA (high) (sf), respectively, from AA (high) (sf) and AA (sf), respectively.
--A11: on 4 January 2023 DBRS Morningstar discontinued its AAA (sf) rating on the Class A2 Notes. Prior to that, on 24 June 2022, DBRS Morningstar confirmed its ratings on the Class A1 and Class A2 Notes at AAA (sf) and upgraded its ratings on the Class B and Class C Notes to AA (high) (sf) and A (high) (sf), respectively, from AA (sf) and BBB (sf), respectively.
--A12: on 19 August 2022 DBRS Morningstar confirmed its ratings on the Class A1 and Class A2 Notes at AAA (sf) and upgraded its rating on the Class B Notes to A (high) (sf) from BBB (high) (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.com.

Sensitivity Analysis: To assess the impact of changing the transactions parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (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 Issuers are as follows:
-- A10: 7.9% and 57.0%, respectively,
-- A11: 8.1% and 57.0%, respectively,
-- A12: 8.7% and 57.0%, 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. Taking the Class B Notes of A10 as example, if the LGD increases by 50%, the rating on 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 on the Class B Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class B Notes would also be expected to remain at AAA (sf).

A10
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 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)

A11
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 AA (high) (sf)

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

A12
Class A1 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 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 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 (low) (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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These ratings are 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 Dates:
-- A10: 29 November 2018
-- A11: 25 June 2020
-- A12: 2 November 2021

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

-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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.
-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Rating CLOs Backed by Loans to European SMEs (10 June 2022) and SME Diversity Model v2.6.1.2, https://www.dbrsmorningstar.com/research/398252/rating-clos-backed-by-loans-to-european-smes.
-- Rating CLOs and CDOs of Large Corporate Credit (7 February 2023), https://www.dbrsmorningstar.com/research/409498/rating-clos-and-cdos-of-large-corporate-credit.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022),
https://www.dbrsmorningstar.com/research/396929/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 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.