DBRS Confirms Rating on Quarzo Lease S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its rating on the Series A Asset-Backed Floating Rate Notes (the Series A Notes) of Quarzo Lease S.r.l. (the Issuer) at AAA (sf).

The confirmation of the rating on the Series A Notes is based on the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of defaults and level of delinquencies, as of the April 2015 payment date.
-- Actual gross default rate, recovery rate and expected losses are within DBRS’s expectations.
-- Current available credit enhancement to the Series 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 assets with new receivables. However, on the October 2013 payment date, a purchase termination event was hit, the revolving period terminated early and the Series A Notes started to amortise.

The pool is fairly granular (5,102 contracts) and well-diversified geographically: Northern (58.83%), Central (19.54%) and Southern Italy (21.63%). Assets in the portfolio belong to four different pools: vehicles (19.94%), equipment (39.96%), real estate (32.06%) and watercraft (8.04%).

The portfolio is performing in line with DBRS’s expectations. The gross cumulative default ratio increased over the year reaching 8.73% in April 2015, but it is still below DBRS’s base case gross loss rate of 12.14%. Selma reports delinquencies as an aggregate figure and does not provide any breakdown by bucket of arrears. The delinquency ratio decreased to 5.01% in April 2015, down from a peak of 6.29% in April 2014.

Credit enhancement to the Series A Notes is mainly provided by subordination of the Series B Notes. The credit enhancement for the Series A Notes (as a percentage of the outstanding performing balance of the portfolio) increased steadily over the year reaching 94.25% in April 2015, up from 56.63% in April 2014. This has been the result of the amortisation of the Series A Notes.

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 Series A Notes, pursuant to the transaction documents. DBRS did not give credit to the liquidity guarantee in its cash flow 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 Series A Notes, as described in the DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology. In addition, Mediobanca S.p.A. acts as swap counterparty for the transaction. The current DBRS private rating of Mediobanca S.p.A. complies with the DBRS First Rating Threshold given the rating assigned to the Series A Notes and supported by Mediobanca S.p.A. posting collateral, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology”. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. Other methodologies referenced in this transaction are listed at the end of this press release.

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

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

DBRS does not rely upon third-party due diligence in order to conduct its analysis; however, Agreed Upon Procedures (AUP) are included in the requested documentation. DBRS was not supplied with AUP documents. Data checks were performed and DBRS did not apply additional cash flow stresses in its scenarios.

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 20 May 2014, when DBRS confirmed the rating on the Series A Notes at AAA (sf).

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with 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 Series 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 Series A Notes would be expected to remain at AAA (sf), all else being equal. If the PD increases by 50%, the rating for the Series A Notes would be expected to remain at AAA (sf), all else being equal. If both the LGD and PD increase by 50%, the rating of the Series A Notes would be expected to remain at AAA (sf), all else being equal.

Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf).
-- 50% increase in LGD, expected rating of AAA (sf).
-- 25% increase in PD, expected rating of AAA (sf).
-- 50% increase in PD, expected rating of AAA (sf).
-- 25% increase in LGD and 25% increase in PD, expected rating of AAA (sf).
-- 25% increase in LGD and 50% increase in PD, expected rating of AAA (sf).
-- 50% increase in LGD and 25% increase in PD, expected rating of AAA (sf).
-- 50% increase in LGD and 50% increase in PD, expected rating of AAA (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Diana Turner

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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 and are as follows:

-- 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.

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.