DBRS Assigns Rating to Adriano Lease Sec. S.r.l.

DBRS Ratings Limited (DBRS) assigned an ‘A’ (sf) rating to the Class A Notes issued by Adriano Lease Sec. S.r.l. (the Issuer). Class B Notes were also issued but not rated.

The notes were issued in the context of a securitisation transaction and are backed by a pool of approximately EUR 4.2 billion receivables related to financial lease contracts granted by Mediocredito Italiano S.p.A. (Mediocredito, or the Originator) to small businesses and commercial enterprises with registered offices in Italy. The receivables do not include the final optional payment comprising the asset residual value of the leases; thus, the transaction is not exposed to residual value risk. Mediocredito also services the portfolio. The collateral portfolio assigned on 7 November 2017 is static and consists of, by allocated loan amount, 80.2% of real estate leases, 15.9% of equipment leases and 3.9% of auto leases.

The rating is based on the following analytical considerations:

-- The transaction capital structure including form and sufficiency of available credit enhancement;
-- The available credit enhancement in the form of subordination and excess spread;
-- A fully funded EUR 43 million reserve fund available to provide liquidity support;
-- Credit enhancement levels are sufficient to support DBRS-projected expected cumulative net losses under various stress scenarios;
-- The ability of the transaction’s structure and triggers to withstand stressed cash flow assumptions in order to timely pay interest and ultimately repay principal under the Class A Notes before the legal maturity date according to the terms of the transaction documents;
-- Mediocredito’s financial strength and its capabilities with respect to originations, underwriting and servicing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral, as deduced from the available information, and the ability of the servicer to perform collection activities on the collateral;
-- The sovereign rating of the Republic of Italy, which is currently rated by DBRS at BBB (high); and
-- The legal structure and legal opinions that address the assignment of the assets to the Issuer and other features, and their consistency with DBRS’s methodology: “Legal Criteria for European Structured Finance Transactions”.

The transaction cash flow structure was analysed in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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.

An asset and a cash flow analysis were both conducted.

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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf

The data and information used for this rating include static gross loss analysis by quarterly vintages from 2007; static recovery analysis by quarterly vintages from 2007; and dynamic delinquencies and prepayment analysis by quarterly vintages from 2007. All the information utilized for this rating was sourced by Mediocredito through the transaction arrangers Banca IMI S.p.A. and Intesa SanPaolo S.p.A.

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.

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

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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): Base Case of 18.5%, a 25% and 50% increase on the base case PD
-- Loss Given Default (LGD): Base Case of 81.3%, a 25% and 50% increase in the base case LGD.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the base case PD by 25% or a hypothetical increase of the base case LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the base case LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (high) (sf).
-- A hypothetical increase of the base case PD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (low) (sf).
-- A hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (low) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the base case LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (low) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (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 and US regulations only.

Lead Analyst: Paolo Conti, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 November 2017

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

-- 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
-- Unified Interest Rate Model for European Securitisations
-- Rating CLOs and CDOs of Large Corporate Credit

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.