DBRS Assigns Rating to Vela Consumer 2 S.r.l.

DBRS Ratings Limited (DBRS) assigned an A (high) (sf) rating to the Class A Asset Backed Fixed Rate Notes (the Class A Notes) issued by Vela Consumer 2 S.r.l. (the Issuer).

The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in October 2035. The Issuer is a limited liability company incorporated in 2017 under the laws of the Republic of Italy.

The Issuer is a securitisation of unsecured consumer loan receivables granted by Banca Nazionale del Lavoro S.p.A. (BNL) to individual borrowers in Italy. BNL acts as the Servicer and Account Bank for the transaction, and Securitisation Services S.p.A. acts as the Back-up Servicer Facilitator. On the basis of the DBRS private rating of BNL and the mitigants outlined in the transaction documentation, DBRS considers the risk arising from the exposure to the Account Bank to be consistent with the rating assigned to the Class A Notes.

As of 16 October 2017 (the Transfer Date), the securitised portfolio consisted of 36,174 loans with an outstanding principal of EUR 587.4 million and average loan balance of EUR 16,238. The portfolio purchase price includes accrued interest of approximately EUR 1.8 million.

Credit enhancement to the Class A Notes is calculated as 20.4% and is provided by subordination of the Class J Asset Backed Variable Return Notes (the Class J Notes) and a Cash Reserve. The Cash Reserve will be funded by a portion of the proceeds of the Class J Notes at the issue date and has a target balance set at 2.0% of the initial balance of the Class A Notes. The Cash Reserve is available to cover senior fees, Class A interest and to clear the principal deficiency ledger. On the issue date, the Class J proceeds will also fund an Interest Reserve to its target balance of EUR 2.0 million, which is available to cover senior fees and Class A interest.

The rating assigned is based on DBRS’s review of the following analytical considerations:
-- The transaction capital structure as well as the form and sufficiency of available credit enhancement, enabling the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- The financial strength of the transaction counterparties and their capabilities with respect to originations, underwriting and servicing;
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and its consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology; and
-- The incorporation of a sovereign-related stress component due to the Long Term Issuer Rating of BBB (high) with a Stable trend assigned to the Republic of Italy by DBRS.

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.

Other methodologies referenced in these transactions 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 sources of data and information used for these ratings includes portfolio and performance data provided by BNL. In particular, DBRS received delinquency and prepayment data, as well as historical gross default and recovery data relating to BNL originations by quarterly vintage, dating back to 2009. A detailed portfolio summary and amortisation schedule as at the Transfer Date were also provided.

DBRS did 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 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 at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (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 current pool of loans for the Issuer are 12.3% and 91.0%, 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 of the Class A Notes would be expected to fall to BBB (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to BBB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to B (high) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)

For further information on DBRS historic 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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 6 December 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

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