DBRS Confirms the Rating of IBL CQS S.r.l. – Public Transaction – Series 2012-2

DBRS Ratings Limited (“DBRS”) has reviewed IBL CQS S.r.l. – Public Transaction – Series 2012-2 (“the Issuer”) and taken the following rating actions:

• Class A Notes confirmed at ‘A’ (sf), and
• Class B Notes confirmed at BBB (low) (sf).

The above mentioned rating actions are based upon the following analytical considerations:
• Portfolio performance, in terms of defaults and delinquencies, as of the May 2014 payment report.
• 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 and Class B Notes to cover the expected losses at the ‘A’ (sf) and BBB (low) (sf) rating level, respectively.

This is a cash securitisation of salary assignment loans and delegation of payments loans extended to pensioners and individuals working in the public sector. As a result, the performance of the notes is assumed to be highly correlated with the sovereign rating. IBL – Instituto Bancario del Lavoro S.p.A. (“IBL”) is the originator and servicer for the transaction.

The deal envisaged a one-year ramp-up period (terminated in July 2013), during which the remaining notes were paid up and new portfolios were purchased with the funds. Additionally, new portfolios have been purchased as per usual revolving feature with the principal collections from the portfolio. There were replenishment criteria and early amortisation triggers to mitigate the potential portfolio performance deterioration.

The pool comprises of salary assignment loans (81.22%) and delegations of payment (18.77%). Employers are represented mainly by semi-public (2.31%) and public (97.63%) entities.

The cumulative gross default ratio (calculated on the initial collateral balance) exhibited an increasing trend since the transaction close and reached a peak of 1.27% in May 2014. The 90+ delinquency ratio has been low and stable over the life of the transaction and is currently at 0.37%.

The Class A Notes are supported by subordination of the Class B and Class C Notes, while the Class B Notes are supported by subordination of the Class C Notes only. Credit enhancement for the Class A Notes (as a percentage of the performing portfolio) increased to 15.12% from 12.11% since the initial rating in July 2012, while credit enhancement for the Class B Notes increased to 5.29% from 3.84%.

The Bank of New York Mellon (Luxembourg) S.A., Italian branch and The Bank of New York Mellon, London branch are the Italian and English Account Bank for the transaction, respectively. The DBRS public ratings of The Bank of New York Mellon (Luxembourg) S.A., Italian branch and The Bank of New York Mellon, 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 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 Securitisation Services 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 30 April 2013 following the downgrade of Italy to ‘A’ (low), when DBRS downgraded the rating of the Class A Notes to ‘A’ (sf) and confirmed the rating of the Class B Notes at BBB (low) (sf).

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 7.36% and 53.00%, 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 remain at ‘A’ (sf), all else being equal. If the PD increases by 50% the rating for the Class A Notes would be expected to remain at ‘A’ (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 be lowered to BBB (sf), all else being equal.

Class A Notes Risk Sensitivity:

• 25% increase in LGD, expected rating of ‘A’ (sf).
• 50% increase in LGD, expected rating of ‘A’ (sf).
• 25% increase in PD, expected rating of ‘A’ (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 A (low) (sf).
• 50% increase in LGD and 25% increase in PD, expected rating of A (low) (sf).
• 50% increase in LGD and 50% increase in PD, expected rating of BBB (sf).

Class B Notes Risk Sensitivity:

• 25% increase in LGD, expected rating of BBB (low) (sf).
• 50% increase in LGD, expected rating of BBB (low) (sf).
• 25% increase in PD, expected rating of BBB (low) (sf).
• 50% increase in PD, expected rating of BBB (low) (sf).
• 25% increase in LGD and 25% increase in PD, expected rating of BBB (low) (sf).
• 25% increase in LGD and 50% increase in PD, expected rating of BB (sf).
• 50% increase in LGD and 25% increase in PD, expected rating of BB (sf).
• 50% increase in LGD and 50% increase in PD, expected rating of B (high) (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 July 2012
Initial Rating Committee Chair: Chuck Weilamann

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

DBRS Ratings Limited
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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.