DBRS Assigns Provisional Rating to Quarzo CQS Srl

DBRS Ratings Limited (DBRS) has today assigned a provisional rating of A (sf) to the Class A Notes to be issued by Quarzo CQS SRL (Quarzo CQS). The Class A Notes are expected to be backed by a pool of receivables related to Italian salary- and pension-backed loans granted to private individuals resident in Italy by Futuro SpA (Futuro).

The ratings are based upon review by DBRS of the following analytical considerations:

-- Transaction capital structure, and form and sufficiency of available credit enhancement.
-- Relevant credit enhancement in the form of subordination and a cash reserve: The €765 million Class A Notes benefit from 11.7% enhancement provided by a €17 million cash reserve to be funded at issuance and from 10% of subordination that consists of €85 million Class B Notes; the Class A Notes also benefit from a €14.45 million liquidity reserve (1.7%) to be funded at issuance.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at an A (sf) standard for the Class A Notes to be issued by Quarzo CQS.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- Futuro’s capabilities with respect to originations, underwriting, servicing and financial strength.
-- The credit quality of the collateral and ability of the servicer to perform collection activities on the collateral. DBRS conduced an operational risk review of Futuro and deems Fututo as an acceptable servicer.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with DBRS’S “Legal Criteria For European Structured Finance Transactions” methodology.

The above mentioned ratings are provisional. Ratings will be finalised upon receipt of execution version of the governing transaction documents. To the extent that the documents and information provided to DBRS as of this date differ from the executed version of the governing transaction documents, DBRS may assign different final ratings to the Notes or may avoid assigning final ratings to the Notes altogether.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Consumer and Commercial Asset-Backed Securitisations.

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 performance and portfolio data relating to the receivables sourced by Futuro SpA and Compass SpA through the transaction arranger, Mediobanca SpA. DBRS received historical performance default and recovery data relating to Futuro’s originations by quarterly vintage on a cumulative basis going back to 2008 and up to and including Q1 2014. Data was also provided relating to monthly dynamic arrear levels and dynamic prepayment data from to 2008 up to Q1 2014. In addition, DBRS received portfolio stratification tables and loan-by-loan data related to a provisional portfolio selected by Futuro as at October 2014, and stratification tables related to an updated provisional portfolio selected as at 31 January 2015 that allowed DBRS to further assess the portfolio. DBRS considers that 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.

These ratings concern newly issued financial instruments. These are the first DBRS ratings on these financial instruments.

The full report providing additional analytical detail is available by clicking on the link or by contacting us at info@dbrs.com.

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):

-- Probability of Default Rate Used: Base Case PD of 10% (excluding sovereign stress), a 25% and 50% increase on the base case PD.
-- Recovery Rate Used: Base Case Recovery Rate of 88% (excluding sovereign stress).
-- Loss Given Default (LGD): Base Case LGD of 12%, a 25% and 50% increase on the base case LGD.

DBRS concludes that for the Class A Notes:

-- A hypothetical increase of the base case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would not lead to a change of the rating of the Class A Notes.
-- A hypothetical increase of the base case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would not lead to a change of the rating of the Class A Notes.
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would not lead to a change of the rating of the Class A Notes.
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB(high) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB(high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to 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: Paolo Conti
Initial Rating Date: 6 March 2015
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: Not applicable; no last rating date.

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

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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.

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