DBRS Confirms and Upgrades Ratings on Sunrise S.r.l. - Series 2014-2

DBRS Ratings Limited (DBRS) has today confirmed and upgraded its ratings on the following notes issued by Sunrise S.r.l. - Series 2014-2 (the Issuer):

-- EUR 514,963,539.45 Class A1 Notes: Confirmed at AAA (sf)
-- EUR 606,553.05 Class A2 Notes: Confirmed at AAA (sf)
-- EUR 319,000,000.00 Class M Notes: Upgraded to AA (sf) from A (high) (sf)

The confirmation of the rating on the Notes is based upon the following analytical considerations:
-- Portfolio Performance, in terms of delinquencies and defaults, as of the November 2015 payment date.
-- Ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- Current available credit enhancement to the notes to cover expected losses assumed in line with the AAA (sf) and AA (sf) rating levels.

The Issuer is a limited liability company incorporated under the laws of Italy. The transaction is a securitisation collateralised by a portfolio of unsecured consumer loans granted by Agos Ducato S.p.A. to retail clients. The transaction closed on 4 December 2014 and had a six-month revolving period.

The pool includes Flexible Loans, which represented 57.46% of the portfolio as of the November payment date. Under these contracts, the borrower has the option to skip one monthly instalment per year (up to a maximum of five times during the life of the loan) and to modify the amount of the monthly instalments. The liquidity risk that might rise from such changes is mitigated through the Payment Interruption Risk Reserve (funded at closing) and the Rata Posticipata Cash Reserve.

As of the November 2015 payment date, one-month delinquencies were 1.25% of the principal outstanding balance, two-month delinquencies were 0.46% and three-month delinquencies were 0.25%, while delinquencies greater than three months were 0.74%. The gross cumulative default ratio was 0.43% of the aggregate original portfolio balance with cumulative recoveries at 0.38%.

Credit Enhancement for Class A1 (60.06%), Class A2 (60.06%) and Class M Notes (32.95%) is provided by the subordination of the junior obligations and the Cash Reserve Account.

The transaction structure includes a Cash Reserve, Payment Interruption Risk Reserve and a Commingling Reserve, funded at closing with part of the issuance proceeds of the Class J Notes. The balance of the Reserve Accounts has been at its target level since the closing date.

The structure also includes a Rata Posticipata Cash Reserve, which shall be funded if, for two consecutive payment dates, the outstanding balance of the Flexible Loans in relation to which debtors have exercised the contractual option to postpone the payments is higher than 5% of the outstanding balance of all Flexible Receivables. Up to the November 2015 payment date, this trigger has not been breached.

Crédit Agricole Corporate & Investment Bank SA, Milan Branch acts as Accounts Bank for the transaction. The DBRS private rating complies with the Minimum Institution Rating given the rating assigned to the Notes, as described in DBRS’s ‘Legal Criteria for European Structured Finance Transactions’ methodology.

Crédit Agricole Corporate & Investment Bank SA and Credit Suisse International are the Swap Counterparties. The DBRS private rating of both entities complies with the First Rating Threshold defined in DBRS’s ‘Derivative Criteria for European Structured Finance Transactions’ methodology.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology applicable is ‘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.

A review of the transaction legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

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.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s ‘The Effect of Sovereign Risk on Securitisations in the Euro Area’ commentary on
http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include information provided by Agos Ducato S.p.A. and Crédit Agricole Corporate & Investment Bank SA, Milan Branch.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

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.

This is the first rating action since the Initial Rating Date. The lead responsibilities for this transaction have been transferred to Vito Natale.

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

To assess the impact of the changing transaction parameters on the rating, DBRS considered the following stress scenarios 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 portfolio based on a review of the current assets. 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 11.23% and 89.13%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected for the Class A1, Class A2 and Class M Notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating for the Class A1 and Class A2 Notes would be maintained at AAA (sf), all else being equal. If the PD increases by 50%, the rating for the Class A1 and Class A2 Notes would be expected to follow to AA (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating for the Class A1 and Class A2 Notes would be expected to follow to AA (sf), all else being equal.

Class A1 and Class A2 Notes 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)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class M Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: 4 December 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Chuck Weilamann

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The rating methodologies 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
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

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.