DBRS Confirms Rating on Asset-Backed Securitisation Transaction Four S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its rating on the Class A notes of Asset-Backed Securitisation Transaction Four S.r.l. (the Issuer) at AAA (sf).

The confirmation of the rating on the Class 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 February 2015 payment date.
-- Actual gross default rate, recovery rate and expected losses are within DBRS’s expectations.
-- Current available credit enhancement to the Class A notes to cover the expected losses at the AAA (sf) rating level.

Asset-Backed Securitisation Transaction Four S.r.l. is a securitisation of a portfolio of auto loans originated and serviced by FCA Bank S.p.A., a joint venture 50% owned by Fiat Group and 50% owned by Crédit Agricole Consumer Finance. As of January 2015, FCA Bank S.p.A. is regulated as a bank by the Bank of Italy under the Italian Banking Act (it was formerly regulated as a financial institution).

The transaction had a three-year revolving period that was extended until July 2013. There were eligibility criteria, performance triggers and concentration limits to mitigate the potential portfolio performance deterioration.

The pool is fairly granular (113,454 loans) and comprises loans extended to Italian individuals (91.18%) and corporates (8.82%) to buy new (91.31%) and used cars (8.69%).

The portfolio is performing in line with DBRS’s expectations. The gross cumulative default ratio (as a percentage of the original portfolio) increased over the year, reaching 2.41% in February 2015, but it is still below DBRS’s base case gross loss rate of 3.92%. The 90+ delinquency ratio (as a percentage of the performing portfolio) marginally increased to 0.47% in the last reporting dates.

Credit enhancement to the Class A notes is mainly provided by subordination of the Class M notes. The credit enhancement for the Class A notes (as a percentage of the outstanding performing balance of the portfolio) increased steadily over the year, reaching 38.30% in February 2015, up from 25.18% in May 2014. This has been the result of the amortisation of the Class A notes.

Crédit Agricole Corporate and Investment Bank serves as account bank for the transaction. The DBRS private ratings of Crédit Agricole Corporate and Investment Bank is at least equal to the Minimum Institution Rating given the rating assigned to the Class A notes, as described in the DBRS’s “Legal 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 and may be found at http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include investor reports provided by Crédit Agricole Corporate and Investment Bank. 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 22 May 2014, when DBRS confirmed the rating on the Class A notes at AAA (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies, is available at 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 3.92% and 86.98%, 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 remain at AAA (sf), all else being equal. If the PD increases by 50%, the rating for the Class 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 Class A notes would be expected to remain at AAA (sf), all else being equal.

Class 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: Michael Babick
Initial Rating Date: 21 June 2012
Initial Rating Committee Chair: Claire Mezzanotte

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 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.