DBRS Assigns Rating to Quarzo S.r.l.

DBRS Ratings Limited (DBRS) has today assigned a rating to Quarzo S.r.l. (Quarzo 2017 or the Issuer) as follows:

-- EUR 1,215,000,000 Series A Notes at A (high) (sf)

DBRS has not assigned ratings to the EUR 285 million Series B Notes issued by Quarzo 2017. The Series A and Series B Notes are backed by an approximately EUR 1.5 billion pool of Italian consumer loans originated by Compass Banca S.p.A. (the Originator).

The rating of the Series A Notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

For further details on the analysis, please refer to the rating report available on www.dbrs.com.

The ratings are based on DBRS’s review of the following analytical considerations:

-- The transaction’s capital structure and form as well as sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to terms in which they have invested. The credit enhancement level is sufficient to support the expected cumulative net loss assumptions in an A (high) stress scenario.
-- The transaction parties’ capabilities with respect to originations, underwriting, servicing and financial strength.
-- The credit quality of the collateral and Compass’s ability to perform collection activities on the collateral.
-- 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.
-- Incorporation of a sovereign-related stress component in the stress scenarios considering ratings the Republic of Italy’s BBB (high) rating.

The transaction was modelled in Intex Dealmaker and the default rates at which the rated notes did not return all specified cash flows in a timely manner were determined.

Notes:
All figures are in euros unless otherwise noted.

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

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.
These 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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

DBRS reviewed the origination and servicing practices of Compass Banca S.p.A. The Originator provided loan-level data, historical performance of the mortgage portfolio and the portfolio’s payment history dating back to 2002.

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

DBRS has been supplied with third-party assessments. However, this did not impact the rating analysis.

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.

DBRS considers the information available to it for the purposes of providing these ratings to be of satisfactory quality.

This rating concern a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

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 to the parameters used to determine the rating (the base case):

-- Probability of default (PD) rate used: base-case PD of 9.38%, a 25% and 50% increase on the base-case PD.
-- Recovery rate used: base-case recovery rate of 14.39%.
-- Loss given default (LGD): base-case LGD of 85.61%, 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%, ceteris paribus, would downgrade the rating of the Series A Notes to A (low) (sf).
-- A hypothetical increase of the base-case LGD by 25%, ceteris paribus, would downgrade the rating of the Series A Notes to A (sf).
-- A hypothetical increase of the base-case PD by 50%, ceteris paribus, would downgrade the rating of the Series A Notes to BBB (high) (sf).
-- A hypothetical increase of the base-case LGD by 50%, ceteris paribus, would downgrade the rating of the Series A Notes to A (sf).
-- A hypothetical increase of the base-case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would downgrade the rating of the Series 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 downgrade the rating of the Series A Notes to BBB (low) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would downgrade the rating of the Series A Notes to BBB (high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would downgrade the rating of the Series A Notes to BBB (low) (sf).

For further information on DBRS historical default rates published by the European Securities and Markets Authority (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, Senior Vice President
Initial Rating Date: 15 February 2017
Initial Rating Committee Chair: Christian Aufsatz, Managing Director

DBRS Ratings Limited
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United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction are listed below:

-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

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.