Asset-Backed European Securitisation Transaction Fifteen S.r.l: DBRS Rating Actions on Asset-Backed European Securitisation Transaction Fifteen Following Amendments

DBRS Ratings Limited (DBRS) took the following rating actions on the Notes and Commingling Reserve Facility in Asset-Backed European Securitisation Transaction Fifteen S.r.l. (A-BEST 15, or the Issuer) following the amendments to the transaction:

-- Class A Asset-Backed Notes (Class A Notes) confirmed at AA (sf)
-- Class B Asset-Backed Notes (Class B Notes) upgraded to AA (low) (sf) from A (high) (sf)
-- Class C Asset-Backed Notes (Class C Notes) confirmed at BBB (sf)
-- Class D Asset-Backed Notes (Class D Notes) upgraded to BBB (low) (sf) from BB (high) (sf)
-- Class E Asset-Backed Notes (Class E Notes) upgraded to BB (low) (sf) from B (high) (sf)

In addition, DBRS assigned a rating of BBB (low) (sf) to the Commingling Reserve Facility in A-BEST 15.

The amendments to the transaction, executed on 13 December 2017, include:

-- A change in the interest rate type on the Notes from fixed-rate to floating-rate indexed to one-month Euribor plus a margin of 0.40%, 0.75%, 2.50%, 3.43%, 4.64%, and 7.17% for Class A, B, C, D, E and M1 Notes, respectively. The interest rate on the Class M2 Notes remains unchanged. DBRS does not rate Classes M1 and M2 Notes of the Issuer.

-- A FCA Swap with FCA Bank S.p.A. (FCAB) as FCA Swap Counterparty is added to the transaction to hedge the interest rate mismatch risks following the change of the interest rate types on the Notes.

-- A Standby Swap with Credit Agricole Corporate and Investment Bank (CACIB) as Standby Swap Counterparty is added to the transaction to provide supports to the FCA Swap in an event of FCAB default.

Under the new FCA Swap Agreement, the Issuer pays the FCA Swap Counterparty a fixed interest rate of -0.01% on a notional amount equal to the total outstanding balance of Class A to E Notes. In return, the Issuer receives a variable payment on an interest rate of one-month Euribor, which is floored at -0.40%. CACIB is acting as a standby swap counterparty through the Standby Swap agreement and will resume the swap obligations in the FCA Swap Early Termination Event. DBRS reviewed the swap documents and concluded that they are compliant with DBRS’s ‘Derivative Criteria for European Structured Finance Transactions’ methodology.

The interest rate risks are hedged through the swaps in place following the amendments. At the same time, the new margins on the Notes are lower than the fixed rates on the Notes prior to the amendments. The fixed rates on the Notes were 0.70%, 1.10%, 3.00%, 5.00%, 6.50%, and 10.00% for Class A, B, C, D, E and M1 Notes, respectively. The reduced margins mean the Issuer’s costs are now lower. Accordingly, the amendments create more excess spread in the transaction. Consequently, DBRS upgraded the Class B, D, and E Notes, and confirmed the Class A and C Notes.

The transaction closed in May 2017 and the performance has been performing within DBRS’s expectations. As of the October 2017 payment date, no loan defaulted had defaulted, and loans more than 90 days in arrears represented only 0.03% of the outstanding portfolio balance. DBRS maintained the based case Portfolio Default rate (PD), Recovery Rate (RR), and Loss Given Default (LGD) rate assumptions at 3.03%, 12.89%, and 87.11%, respectively, for its cash flow analysis. The assumptions of loss on insurance premiums as a result of loan prepayments were also maintained at 1.31% for ratings above BBB (sf) and 0.66% for ratings below, assuming 15% constant prepayment rate (CPR).

BNP Paribas Securities Services, Milan Branch, is the Account Bank in the transaction. It has a DBRS private rating that meets the Minimum Institution Rating criteria given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The DBRS private rating on FCAB does not meet the rating requirement thresholds. The FCAB swap counterparty risk is mitigated through the existence of the standby swap counterparty, CACIB. CACIB has a DBRS private rating that complies with the first rating threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A Notes.

The Commingling Reserve Facility (CR Facility) is currently at its target balance of EUR 35 million and was funded at closing by FCAB. The funds are deposited with the Account Bank and the Issuer pays a fixed 1% interest on the CR Facility to FCAB through Pre-Trigger Notice Interest Priority of Payments after Class C Notes interest payment and before Class D Notes interest payment or through Post-Trigger Notice Priority of Payments after Class C Notes are repaid in full.

The CR Facility balance does not amortise during the transaction revolving period, ending in May 2019. After the revolving period, the CR Facility balance will amortise to the lower of EUR 35 million and scheduled collections for the following collection period assuming a 15% CPR. The amortised CR Facility amount will be paid back to FCAB outside of the transaction’s priority of payments. The CR Facility target balance will reduce to zero when Class C is fully repaid. The CR Facility could only be drawn when FCAB is insolvent resulting no transfer of the borrower collections to the Issuer or no indemnification in an Insurance Event.

To determine the rating of the CR Facility, DBRS considered the credit qualities of FCAB, the Account Bank, the Class C Notes, and the Class D Notes to assess the likelihood of a facility drawing and timely interest payments. Following the analysis, DBRS assigned a rating of BBB (low) (sf) to the CR Facility.

Notes:
All figures are in euros unless otherwise noted.

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

The principal methodology applicable to the rating of the Commingling Reserve Facility is: “Legal Criteria for European Structured Finance Transactions”.

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

DBRS has conducted a review of the transaction’s legal documents provided in the context of the aforementioned amendments. A review of any other transaction’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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.

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 include the monthly investor reports from U.S. Bank Trustees Limited and the amendment legal documents provided by the law firm.

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

At the time of each transaction’s initial ratings, 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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities have been transferred to Kevin Ma.

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):

DBRS expected a Base Case PD and 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 PD is 3.03% and RR is 12.89%, which translates to an 87.11% of LGD.

-- The Risk Sensitivity overview below illustrates the rating expected if the PD and LGD increase by a certain percentage over the Base Case assumption. For example, if the LGD increased to 100%, the rating on the Class A Notes would be expected to be at AA (low) (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 at A (low) (sf), assuming no change in the LGD. Furthermore, if both the PD increased by 50% and the LGD increased to 100%, the rating on the Class A Notes would be expected to be at BBB (high) (sf).

Class A Notes risk sensitivity:
-- 100% LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 100% LGD, expected rating of A (sf)
-- 50% increase in PD and 100% LGD, expected rating of BBB (high) (sf)

Class B Notes risk sensitivity:
-- 100% LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 100% LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 100% LGD, expected rating of BBB (high) (sf)

Class C Notes risk sensitivity:
-- 100% LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (low) (sf)
-- 25% increase in PD and 100% LGD, expected rating of BB (sf)
-- 50% increase in PD and 100% LGD, expected rating of B (sf)

Class D Notes risk sensitivity:
-- 100% LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (low) (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 25% increase in PD and 100% LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 100% LGD, expected rating of Below B (sf)

Class E Notes risk sensitivity:
-- 100% LGD, expected rating of B (sf)
-- 25% increase in PD, expected rating of B (low) (sf)
-- 50% increase in PD, expected rating of below B (sf)
-- 25% increase in PD and 100% LGD, expected rating of Below B (sf)
-- 50% increase in PD and 100% LGD, expected rating of Below B (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: Kevin Ma, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 16 May 2017

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 can be found at:
http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.