Press Release

DBRS Morningstar Upgrades and Confirms Credit Ratings on AutoFlorence 1 S.r.l.

Auto

July 13, 2023

DBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on the notes (collectively, the Notes) issued by AutoFlorence 1 S.r.l. (the Issuer):

-- Class A Notes confirmed at AA (sf)
-- Class B Notes upgraded to A (high) (sf) from A (sf)
-- Class C Notes upgraded to A (low) (sf) from BBB (high) (sf)
-- Class D Notes confirmed at BB (high) (sf)
-- Class E Notes confirmed at B (high) (sf)

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in December 2042. The credit ratings on the Class B, Class C, Class D, and Class E Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date in December 2042.

The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the June 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Notes to cover the expected losses at their respective credit rating levels.

The transaction is an Italian securitisation of auto loan receivables granted and serviced by Findomestic Banca S.p.A. (Findomestic). The transaction closed in August 2019 and had an initial 12-month revolving period, which ended on the August 2020 payment date. Since then, the rated notes as well as the unrated Class F Notes have been amortising on a pro rata basis. However, certain events could cause this feature to stop, and the cash flows would then be allocated on a sequential basis to amortise the Notes.

Despite the pro rata amortisation of the Notes, the deleveraging of the portfolio, down to EUR 176.6 million from EUR 950.0 million at closing in 2019, prompted the upgrades on the credit ratings of the Class B and Class C Notes.

PORTFOLIO PERFORMANCE
As of the June 2023 payment date, loans that were one to two months delinquent represented 0.6% of the principal outstanding balance of the portfolio, while loans that were two to three months and more than three months delinquent represented 0.1% and 0.2%, respectively. Gross cumulative defaults amounted to 1.7% of the aggregate original portfolio balance, with cumulative recoveries of 17.2% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of receivables and updated its base case PD to 3.5% and maintained its base case LGD assumption at 80.0%.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the Class A through Class E Notes. As of the June 2023 payment date, credit enhancements to the Class A, Class B, Class C, Class D, and Class E Notes were 15.0%, 11.0%, 8.0%, 5.5%, and 3.5%, respectively, unchanged since the DBRS Morningstar initial credit rating because of the inclusion of the 12-month revolving period first and the subsequent pro rata amortization of the notes.

The transaction benefits from a liquidity reserve, available until the Class C Notes are fully repaid, to cover senior expenses, swap payments, interest on the Class A Notes, and interest on the Class B and Class C Notes if not subordinated. It is available only if principal collections are not sufficient to cover the interest deficiency. The liquidity reserve was funded at closing with EUR 8.7 million and its required balance is equal to 1% of the aggregate balance of the Class A, Class B, and Class C Notes’ balance, subject to a EUR 3.1 million floor. The liquidity reserve is currently at its floor of EUR 3.1 million.

BNP Paribas Succursale Italia (BNPP Italia) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on BNPP Italia, 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 to be consistent with the credit ratings assigned to the Notes, as described in DBRS Morningstar’s "Legal Criteria for European Structured Finance Transactions" methodology.

Findomestic acts as the swap counterparty for the transaction. DBRS Morningstar’s private rating of Findomestic is consistent with the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this Press Release.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/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 methodology applicable to the credit 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 this transaction are listed at the end of this press release.

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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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 credit ratings include investor reports, servicer reports, and loan-level data provided by Securitisation Services S.p.A., Findomestic, and European DataWarehouse GmbH, respectively.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 20 July 2022, when DBRS Morningstar upgraded its credit ratings on the Class B and Class C Notes to A (sf) and BBB (high) (sf) from A (low) (sf) and BBB (sf), respectively, and confirmed its credit ratings on the Class A Notes at AA (sf), Class D Notes at BB (high) (sf), and Class E Notes at B (high) (sf).

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit 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 3.5% and 80.0%, respectively.
-- The risk sensitivity overview below illustrates the credit 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 credit rating of the Class A Notes would be expected to fall to A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating of the Class A Notes would be expected to fall to A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the credit rating of the Class A Notes would be expected to fall to BBB (high) (sf).

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

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

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

Class D Notes Risk Sensitivity: -- 25% increase in LGD, expected credit rating of BB (low) (sf)
-- 50% increase in LGD, expected credit rating of BB (low) (sf)
-- 25% increase in PD, expected credit rating of BB (high) (sf)
-- 50% increase in PD, expected credit rating of BB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating below B (sf)

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating below B (sf)
-- 50% increase in LGD, expected credit rating below B (sf)
-- 25% increase in PD, expected credit rating below B (sf)
-- 50% increase in PD, expected credit rating below B (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating below B (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating below B (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://registers.esma.europa.eu/cerep-publication/. 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 credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 3 July 2019

DBRS Ratings GmbH
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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.

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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