DBRS Confirms the Ratings of Quarzo S.r.l. – Series 2013

DBRS Ratings Limited (“DBRS”) has reviewed Quarzo S.r.l. – Series 2013 (“the Issuer”) and confirms the rating of the Class A Notes at A (high) (sf).

The confirmation of the rating on the Class A Notes is based on the following analytical considerations:
• The defaults and delinquencies of the Portfolio, as of the April 2014 payment date.
• The eligibility criteria is met and the concentration limits are below the thresholds.
• Incorporation of a sovereign related stress component in the rating analysis to address the impact of any macroeconomic variables on collateral performance given the long-term foreign and local currency rating of ‘A’ (low) for the Republic of Italy.
• The current available Credit Enhancement to the Class A Notes to cover the expected losses.

Quarzo S.r.l. – Series 2013 is a securitisation of a portfolio of consumer loans granted to retail clients. The portfolio was originated and is serviced by Compass S.p.A. (Compass), a wholly-owned subsidiary of Mediobanca Banca di Credito Finanziario S.p.A.

EUR 3.5 billion of Class A and Class B Notes funded the purchase of the initial portfolio in June 2013. The transaction envisages a 30-month revolving period scheduled to end in December 2015, during which Compass could replenish amortised assets with new receivables. There are eligibility criteria, concentration limits and purchase termination events to mitigate the potential portfolio performance deterioration. To date, all of tests have passed.

The pool is fairly granular (435,705 contracts), moderately seasoned (two years) and highly concentrated in Central (23.13%) and Southern (47.62%) Italy. All debtors pay on a monthly basis.

The portfolio is performing within DBRS initial expectations. The cumulative gross default ratio (as a percentage of the initial portfolio) showed an increasing trend over the year and reached 1.30% in April 2014, up from 0.64% in February 2014. Conversely, the cumulative gross default ratio (as a percentage of the initial portfolio plus the subsequent portfolios) is currently at 0.97%.

The servicer reports delinquencies as an aggregate figure and does not provide any further breakdown of the arrears. The delinquency ratio has ranged between 0.39% and 1.46% since issuance and it is currently at 1.46%.

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 portfolio) has been stable at 15.42% since issuance in June 2013, but the transaction is still in the replenishment period.

The deal is exposed to set-off risk as debtors may open accounts with the Originator. As mitigants to the set-off risk, the transaction benefits from a Set-Off Reserve of EUR 35 million and an unconditional guarantee provided by Mediobanca Banca di Credito Finanziario S.p.A.

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.

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 investor reports provided by Deutsche Bank S.p.A. as well as servicer reports provided by Compass 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 5 June 2013, when DBRS assigned the ratings of A (high) to the Class A Notes.

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 9.43% and 86.55%, 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 increases by 50%, the rating for the Class A Notes would be expected to fall to BBB (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 BBB (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 BB (sf), all else being equal.

Class A Notes Risk Sensitivity:

• 25% increase in LGD, expected rating of A (low) (sf).
• 50% increase in LGD, expected rating of BBB (high) (sf).
• 25% increase in PD, expected rating of A (low) (sf).
• 50% increase in PD, expected rating of BBB (high) (sf).
• 25% increase in LGD and 25% increase in PD, expected rating of BBB (sf).
• 25% increase in LGD and 50% increase in PD, expected rating of BBB (low) (sf).
• 50% increase in LGD and 25% increase in PD, expected rating of BBB (low) (sf).
• 50% increase in LGD and 50% increase in PD, expected rating of BB (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: 5 June 2013
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Mary Jane Potthoff

DBRS Ratings Limited
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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.
• 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.