DBRS Confirms the Ratings to Quarzo Lease S.r.l.

DBRS Ratings Limited (“DBRS”) has reviewed Quarzo Lease S.r.l. (“the Issuer”) and confirms the ratings of the Class A Notes at AAA (sf).

The confirmation of the rating on the Class A Notes is based upon the following analytical considerations:
• Portfolio performance, in terms of defaults and delinquencies, as of the April 2014 payment date.
• Updated default, recovery and loss assumptions on the remaining balance of the collateral portfolio.
• Incorporation of a sovereign related stress component in the rating analysis to address the impact of macroeconomic variables on collateral performance given the long-term foreign and local currency rating of ‘A’ (low) for the Republic of Italy.
• Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

Quarzo Lease S.r.l. is a securitisation of a portfolio of financial lease receivables originated and serviced by SelmaBipiemme Leasing S.p.A. (“Selma”). The deal follows the standard structure under the Italian Securitisation Law and closed in July 2011.

The transaction envisaged a three-year revolving period scheduled to end in July 2014, during which Selma could replenish amortised asset with new receivables. There were eligibility criteria and purchase termination events to mitigate the potential portfolio performance deterioration. On the October 2013 payment date, the Class A Notes started to amortise and the revolving period ended early due to a purchase termination event being hit.

The pool is fairly granular (6,303 contracts) and well diversified geographically: Northern (56.91%), Central (19.52%) and Southern Italy (23.57%). Assets in the portfolio belong to four different pools: vehicles (23.78%), equipment (41.64%), real estate (23.77%) and watercraft (10.81%).

The pool is performing within DBRS initial expectations. The cumulative gross default ratio showed an increasing trend and reached 6% in April 2014. The servicer reports delinquencies as an aggregate figure and does not provide any breakdown by bucket of arrears. The delinquency ratio ranged between 1.67% and 6.29% and reached the peak of 6.29% in April 2014.
The Class A Notes are supported by subordination of the Class B Notes. Credit enhancement for the Class A Notes (as a percentage of the performing portfolio) increased to 56.63% from 37.87% at rating in July 2011. The Issuer benefits from a Liquidity Guarantee provided by Selma (not rated by DBRS), under which Selma undertakes to provide timely the liquidity necessary for the payment of any amount due as principal or interest in relation to the Class A Notes, pursuant to the transaction documents. DBRS did not give credit to the liquidity guarantee in its analysis.

Deutsche Bank S.p.A. and Deutsche Bank AG, London branch are the Italian and English Account Bank, respectively. The DBRS private ratings of each Deutsche Bank S.p.A. and Deutsche Bank AG, London branch are at least equal to the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in the DBRS Legal Criteria for European Structured Finance. Additionally, Mediobanca – Banca di Credito Finanziario S.p.A. acts as swap counterparty for the transaction. The current DBRS private rating of Mediobanca – Banca di Credito Finanziario S.p.A. complies with the DBRS First Rating Threshold given the rating assigned to the Class A Notes and supported by Mediobanca – Banca di Credito Finanziario S.p.A. posting collateral, as described in the DBRS Derivative Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euro unless otherwise noted.
The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include payment reports and investor reports provided by Deutsche Bank S.p.A. as well as servicer reports provided by SelmaBipiemme Leasing S.p.A. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 25 April 2013, when DBRS confirmed the ratings of the Class A Notes at AAA (sf) and removed the ratings from Under Review with Negative Implications.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• DBRS expected a Base Case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the transaction performance. 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 receivables are 12.14% and 85.00%, respectively.
• The Risk Sensitivity overview below illustrates the ratings expected for the Class A Notes if the PD and LGD increase by a certain percentage over the Base Case assumption. For example, if the LGD increase by 50% the rating for the Class A Notes would be expected to be AA (high) (sf), all else being equal. If the PD increases by 50% the rating for the Class A Notes would be expected to fall to AA (high) (sf), all else being equal. If both the LGD and PD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (sf), all else being equal.

Class A 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 LGD and 25% increase in PD, expected rating of AA (high) (sf).
• 25% increase in LGD and 50% increase in PD, expected rating of AA (sf).
• 50% increase in LGD and 25% increase in PD, expected rating of AA (high) (sf).
• 50% increase in LGD and 50% increase in PD, expected rating of AA (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Gareth Levington
Initial Rating Date: 20 July 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Chuck Weilamann

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

• Legal Criteria for European Structured Finance Transactions.
• Derivative Criteria for European Structured Finance Transactions.
• Master European Structured Finance Surveillance Methodology.
• Operational Risk Assessment for European Structured Finance Servicers.
• Unified Interest Rate Model for European Securitisations.
• Rating European Consumer and Commercial Asset-Backed Securitisations.