DBRS Upgrades Rating on the Notes Issued by IBL Finance S.r.l. (IBL CQS 2015) Following Methodology Update

DBRS Ratings Limited (DBRS) has today upgraded the rating on the Class A Notes issued by IBL Finance S.r.l. (IBL CQS 2015) (the Issuer) to A (high) (sf) from A (low) (sf) and has removed the Under Review with Developing Implications designation.

This is a securitisation of salary-assignment loans and delegation of payments loans extended to pensioners and individuals working in the public sector, originated and serviced by IBL – Istituto Bancario del Lavoro S.p.A. (IBL). The transaction benefited from a ramp-up period ended at the payment date falling in November 2016 and closed in 2015.

The Class A Notes rating was placed Under Review with Developing Implications following the Republic of Italy’s Sovereign rating downgrade (see 20 January 2017 press release titled “DBRS Takes Rating Actions on 18 EU SF Transactions, Following Republic of Italy Sovereign Rating Downgrade” on dbrs.com).

The upgrade reflects an annual review of the transaction and is based on the following analytical considerations:
-- The release of the DBRS methodology “Italian Salary-Assignment Loan Securitisations – Methodology” (the Methodology) published on 11 May 2017 (see 11 May 2017 press release titled “DBRS Publishes Italian Salary-Assignment Loan Securitisations Methodology” on dbrs.com).
-- Portfolio performance in terms of delinquencies and defaults, as of the May 2017 payment date.
-- Updated default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (high) (sf) rating level.
-- Resolution of the Under Review with Developing Implications status after DBRS has determined the full impact of reviewing the sensitivity of the securitisation credit risk to the credit risk of the Italian sovereign.

METHODOLOGY RELEASE
The Methodology details DBRS’s analysis for securitisations of Italian salary-assignment loans. It outlines how DBRS considers the specific aspects of these loans and portfolios. In analysing securitisations of salary-assignment loans, DBRS first assesses the level of job events and life events likely to occur under different stresses as a result of idiosyncratic borrower behaviour, employer default and the decisions of the Italian state. DBRS then considers the extent to which insurance policies will mitigate the losses based on the terms of the insurance contracts and the credit performance of insurers.

PORTFOLIO PERFORMANCE
The performance of the collateral portfolio is within DBRS’s expectations. As of May 2017, the loans more than 90 days in arrears are at 0.54% of the outstanding performing portfolio collateral balance. Defaults are defined as loans with eight unpaid instalments and the cumulative percentage is at 1.32% of the original portfolio collateral balance.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its default, recovery and loss assumptions on the remaining receivables following application of the Methodology. The base case probability of default (PD) and loss given default (LGD) of the current pool of receivables are 8.05% and 35.36%.

CREDIT ENHANCEMENT
The Class A Notes are supported by subordination of the Class B Notes. The credit enhancement for the Class A Notes increased since the end of the ramp-up period and it is currently at 13.98% of the performing collateral balance. The transaction benefits from an amortising cash reserve, which provides liquidity support during the life of the transaction and will be available to cover any principal payments at maturity of the Class A Notes.

The Bank of New York Mellon, (Luxembourg) S.A./N.V., Milan Branch and The Bank of New York Mellon S.A./N.V., London Branch are the Account Banks for the transaction and their DBRS ratings comply with the Minimum Institution Rating, given the ratings assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology.”

DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

For a more detailed discussion of the approach to salary-backed loans in Structured Finance ratings, please refer to DBRS “Italian Salary-Assignment Loan Securitisation —- Methodology” at:
http://dbrs.com/research/310382/italian-salary-assignment-loan-securitisations-methodology.pdf

A review of the transaction legal documents was not conducted as the legal 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.

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 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 data and information used for these ratings include the servicer, investor reports and loan-by-loan data provided by IBL and European Data Warehouse GmbH.

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

At the time of the initial rating DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

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

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 20 January 2017, when DBRS placed the A (low) (sf) rating on the Class A Notes Under Review with Developing Implications.

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

To assess the impact of changing the transactions parameters on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):

-- DBRS expected a lifetime Base Case PD and LGD for the pool 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 pool of mortgages are 8.05% and 35.36%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected 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 on the Class A Notes would be expected to be A (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to be A (low) (sf).

Class A notes Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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.

Lead Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 22 May 2015

DBRS Ratings Limited
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The rating methodologies used in the analysis of these transactions can be found at: http://www.dbrs.com/about/methodologies

-- Italian Salary-Assignment Loan Securitisations – Methodology
-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European 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.