DBRS Confirms Auto ABS Italian Loans Master SRL’s Class A1 and Class A2 Notes

DBRS Ratings Limited (DBRS) confirmed its ratings on the Class A1 and Class A2 notes (together, the Class A notes) issued by Auto ABS Italian Loans Master SRL (the Issuer) at AA (high) (sf).

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of December 2017;
-- Updated probability of default (PD), loss given default (LGD) and expected loss assumptions;
-- No Amortisation Events have occurred;
-- The current available credit enhancement (CE) to the Class A notes to cover expected losses assumed in line with the AA (high) (sf) rating level.

The ratings on the Class A notes address the timely payment of interest and ultimate payment of principal payable on or before the Legal Final Maturity Date in December 2029.

The Issuer is an Italian securitisation collateralised by a portfolio of auto loan receivables granted to predominantly Italian retail clients by Banca PSA Italia S.p.A. (BPSA), a joint venture equally detained by Banque PSA Finance and Santander Consumer Bank S.p.A.

As part of a global cooperation strategy aimed at supporting the sales of PSA group cars by providing financing to end-customers and dealers, the business unit of Banque PSA Finance, Italian Branch was transferred to BPSA on 4 January 2016. In the context of this reorganisation, several amendments were made to the transaction, including the replacement of Banque PSA Finance, Italian Branch and Banque PSA Finance by BPSA in the several roles both entities originally assumed in the context of this securitisation. Additional changes were made to the structure in January 2017, including the extention of the revolving period until January 2018 and the decrease of the margin applicable to the Class A notes to 0.60% from 0.75%.

As of 27 December 2017, the balance of the Class A1 and A2 notes was EUR 300.0 million each, and the balance of Class B notes was EUR 81.8 million. The EUR 681.8 million securitised portfolio (excluding defaulted receivables) consisted of 114,092 loans granted to private (93.0%) and corporate clients (7.0%) for the purpose of financing the purchase of new (89.4%) and used vehicles (10.6%).

PORTFOLIO PERFORMANCE
Loans in arrears between 31 days and 60 days and 61 to 90 days represented 0.2% and 0.1% of the outstanding principal balance of the portfolio, respectively, while delinquencies greater than 90 days were 0.1%. Gross cumulative defaults, as a percentage of the original portfolio and cumulative transferred receivables, stood at 0.2%, with cumulative recoveries of 18.3%.

PORTFOLIO ASSUMPTIONS
DBRS updated its base case PD and LGD assumptions on the outstanding portfolio to 4.0% and 83.2%, respectively. The base case PD has deteriorated since the last annual review in January 2017, reflecting DBRS’s downgrade of the Republic of Italy’s Long-Term Foreign Currency rating to BBB (high) with a Stable trend on 13 January 2017 (see DBRS’s press release entitled, “DBRS Downgrades Italy to BBB (high), Stable Trend”).

REVOLVING PERIOD
The transaction closed in September 2014 and has a revolving period ending in January 2018. During the revolving period, additional receivables may be acquired with proceeds from the monthly collections generated by the securitised portfolio or through additional drawdowns on the Notes, up to each Class Target Amount (EUR 350.0 million for the Class A1 notes, EUR 350.0 million for the Class A2 notes and EUR 400.0 million for the Class B notes).

CREDIT ENHANCEMENT
CE for the Class A notes (13.7%) is provided by the subordination of the Class B notes and the General Reserve Account. CE has decreased from 14.2% on the last annual review as the Advance Rate increased by 50 basis points following the transaction amendment.

The Issuer entered into two Subordinated Loan Agreements with BPSA, the General Reserve Subordinated Loan Agreement and the Commingling Reserve Subordinated Loan Agreement, whose proceeds financed the funding of both the General Reserve and the Commingling Reserve accounts at closing by their Required Amount. Under these agreements, the Subordinated Loan Provider shall also advance to the Issuer the additional Required Amounts when additional drawdowns on the Notes occur.

BNP Paribas Securities Services, Milan Branch (BNP Milan) acts as Accounts Bank for the transaction. The DBRS private rating of BNP Milan complies with the Minimum Institution Rating given the rating assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

HSBC France is the Swap Counterparty. The DBRS private rating of HSBC France complies with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings 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 “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 for these ratings include investor reports provided by BNP Paribas Securities Services SCA (the Calculation Agent).

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

DBRS was supplied with third party assessments in December 2015. 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 11 January 2017, when DBRS upgraded the ratings on the Class A notes at to AA (high) (sf) from AA (sf).

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the “Base Case”):

-- DBRS expected a base case PD and LGD for the portfolio based on a review of the current assets and the transaction’s replenishment criteria. 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 receivables are 3.2% and 83.0%, respectively, excluding sovereign stress.

-- The Risk Sensitivity below illustrates the ratings expected for the 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 of the Class A notes would be expected to decrease to AA (sf), all else being equal. If the PD increases by 50%, the rating of Class A notes would be expected to decrease to AA (low) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to decrease to A (sf), all else being equal.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 29 September 2014

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
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers

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