DBRS Confirms Ratings on Locat SV S.r.l. – Series 2011

DBRS Ratings Limited (“DBRS”) has reviewed Locat SV S.r.l. – Series 2011 (the “Issuer”) and confirms the rating on the Class A Notes at AA (low) (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 March 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 AA (low) (sf) rating level.

Locat SV S.r.l. –Series 2011 is a securitisation of a mixed pool of leases receivables related to real estate, equipment, vehicles and naval vessels. The receivables were originated and are serviced by Unicredit Leasing. The transaction follows the standard structure under the Italian Securitsation Law and closed in February 2011.

The transaction had an initial revolving period during which time the originator could sell further receivables to the Issuer until the September 2012 payment date, after which the Notes began to amortise. The initial portfolio consisted of 43% real estate leases, 29% equipment leases, 16% vehicle leases and 12% naval leases. The portfolio as of March 2014 is heavily concentrated in real estate leases (74%) and equipment leases (15%).

The portfolio is performing outside of initial DBRS expectations in terms of delinquencies and defaults, but performance has stabilised since downgrade of the Class A Notes in November 2012 and more significantly over the last year. The current 90+ delinquency rate is 2.57%, up from 1.39% in March 2013. The cumulative default percentage is currently 11.32%, up from 7.25% in March 2013. Cumulative recoveries are low but have been increasing over time and currently stand at 13.71%.

The Class A Notes are supported by subordination of the Class B Notes and a Cash Reserve Fund. Current credit enhancement to the Class A Notes (as a percentage of the performing balance of the portfolio) is 50.82%, up from the initial value of 36.99% in February 2011. The current balance of the Cash Reserve Fund is EUR 44.4 million, below the target balance of EUR 257.0 million. The Class A Notes are further supported by a Debt Service Reserve equal to 1.5% of the outstanding balance of the Class A Notes to provide liquidity to the Class A Notes.

BNP Paribas Securities Services, Milan branch is the account bank for the transaction. The DBRS private rating of BNP Paribas Securities Services, Milan branch is 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. Credit Suisse International is the swap counterparty for the transaction. The DBRS private rating of Credit Suisse International is above the First Rating Threshold 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 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 remittance reports from Securitisation Services, S.p.A. and Unicredit 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 the rating on the Class A Notes was confirmed.

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 28.87% and 15.00%, respectively.
• The assumed recovery time lag was increased to 82 months from 36 months.
• The Risk Sensitivity 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 increases by 50% the rating for the Class A Notes would be expected to remain at AA (low) (sf), all else being equal. If the PD increases by 50% the rating for the Class A notes would be expected to be lowered to ‘A’ (sf), all else equal. If both the LGD and PD increase by 50%, the rating of the Class A Notes would be expected to be lowered to BBB (sf), all else equal.
• Base case default perceived as unusually severe. With reference to the Rating European Consumer and Commercial Asset-Backed Securitisations methodology, the following non-standard multiples have been applied to each rating scenario: AAA – 2.53; AA – 2.00; A – 1.60; BBB – 1.35; BB – 1.22; and, B - 1.13.

Class A Risk Sensitivity:
• 25% increase in LGD, expected rating of AA (low) (sf)
• 50% increase in LGD, expected rating of AA (low) (sf)
• 25% increase in PD, expected rating of AA (low) (sf)
• 50% increase in PD, expected rating of ‘A’ (sf)
• 25% increase in LGD and 25% increase in PD, expected rating of ‘A’ (sf)
• 25% increase in LGD and 50% increase in PD, expected rating of BBB (sf)
• 50% increase in LGD and 25% increase in PD, expected rating of ‘A’ (sf)
• 50% increase in LGD and 50% increase in PD, expected rating of BBB (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: Alessio Pignataro
Initial Rating Date: 17 February 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Keith Gorman
Rating Committee Chair: Chuck Weilamann

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
United Kingdom

Registered in England and Wales: No. 7139960

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.