DBRS Confirms Rating of Quarzo S.r.l. 2015

DBRS Ratings Limited (DBRS) has today confirmed its A (high) (sf) rating on the Series 2015, Class A Notes (the Class A Notes) issued by Quarzo S.r.l. 2015 (the Issuer).

The above-mentioned rating action follows an annual review of the transaction and is based on the following analytical considerations, as described more fully below:
-- The overall portfolio performance as of the May 2017 payment date, particularly with regard to low levels of cumulative net loss and delinquencies.
-- No Purchase Termination Events have occurred.
-- The current levels of credit enhancement (CE) available to the Class A Notes to cover expected losses are in line with the A (high) (sf) rating level.

The rating of the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in February 2032.

The Issuer is a securitisation consisting of unsecured Italian consumer loan receivables granted to retail clients and originated by Compass Banca S.p.A. (Compass). The EUR 2,199.9 million portfolio, as of the May 2017 payment date, consists of auto loans (2.7%), personal loans (96.8%) and purpose loans (0.5%).

PORTFOLIO PERFORMANCE
The gross cumulative default ratio (as a percentage of the original portfolio plus all subsequent portfolios) is 1.5% as of May 2017, of which 4.2% has been recovered. The 90+ delinquency ratio is 0.6%.

REVOLVING PERIOD
The transaction structure allows for additional portfolios to be purchased during a revolving period of three-and-a-half years, which is due to mature in January 2019. There are concentration limits and Purchase Termination Events in place to mitigate potential portfolio performance deterioration during the revolving period, allowing for amortisation to begin earlier than scheduled. To date, all tests have been passed.

CREDIT ENHANCEMENT
CE is provided by the subordination of the unrated EUR 506.0 million Class B Notes. CE for the Class A Notes has remained at 23.0% since closing.

The transaction benefits from a non-amortising Liquidity Reserve funded at closing through part of the proceeds from the issuance of the Class B Notes, which are available to cover senior expenses and missed interest payments on the Class A Notes. This account has been at its target of EUR 11.0 million since closing.

The structure also includes a Flexible and LibeRata Loans Cash Reserve, which mitigates the liquidity risk arising from Flexible and LibeRata Loans. These loans can represent up to 20.0% of the outstanding balance of the portfolio and are currently at the level of 2.2%. Under these agreements, borrowers have the option to skip one monthly instalment per year (up to a maximum of five times during the life of the loan) or to modify the amount of the monthly instalments. This reserve is only funded if, for three consecutive calculation dates, the outstanding balance of the Flexible and LibeRata Loans in relation to which the debtors have exercised the contractual right to postpone the payments is higher than 5.0% of the portfolio balance. As of the May 2017 payment date, this condition had not been breached.

Mediobanca S.p.A. serves as Account Bank for the transaction. DBRS’s private rating of Mediobanca S.p.A. complies with the minimum institution rating, given the rating 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 transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 this rating include investor reports provided by Deutsche Bank S.p.A., servicer reports provided by Compass and data from the European DataWarehouse 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 this rating 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 12 July 2016, when DBRS confirmed its rating of A (high) (sf) on the Class A Notes.

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

To assess the impact of the 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):

-- 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 of PD and LGD of the current pool of assets of receivables are 10.0% and 86.8% (excluding sovereign stress), respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected for Class A 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 A Notes would both be expected to decrease to A (sf), ceteris paribus. If the PD increases by 50%, the rating for the Class A Notes would be expected to decrease to BBB (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating for the rating for the Class A Notes would be expected to decrease to BBB (sf), ceteris paribus.

Class A Notes risk 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)
-- 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, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Manging Director
Initial Rating Date: 22 July 2015

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

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

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- 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.