DBRS Assigns AA (low) (sf) Rating to Marzio Finance S.r.l. - Series 2-2018

DBRS Ratings Limited (DBRS) assigned a AA (low) (sf) rating to the Class A Notes (the rated notes) from Series 2-2018 issued by Marzio Finance S.r.l. (the Issuer) under the Marzio Finance S.r.l. programme (the Programme).

The Class J Notes, which combined with the Class A Notes form Series 2-2018, are also issued but not rated. Further series may be issued under the Programme, but each series is segregated from the others and as such, although DBRS may assign ratings to notes from the other series, the ratings may be different. In fact, each series will act as a separate compartment of the Programme as typically permitted under Italian securitisation law; however, most of the counterparties and some of the series features are regulated by the programme documents.

The notes issued from Series 2-2018 are backed by Italian consumer loan contracts related to salary and pension assignment loans as well as payment delegation loans granted by IBL – Istituto Bancario del Lavoro S.p.A. (IBL or the Originator) to Italian employees and pensioners and previously assigned to IBL CQS 2013 S.r.l., an existing securitisation issuer sponsored by IBL. The proceeds of subscription from the Series 2-2018 notes financed the purchase of the portfolio backing the Series 2-2018 notes. The Series 2-2018 receivables are segregated from the Series 1-2017 and the other series’ receivables that may be assigned to back the issuance of further series. The Series 2-2018 receivables and the other receivables that may be assigned in the context of the Programme are serviced by IBL, with Zenith Service S.p.A. appointed as the back-up servicer.

The Programme was established in August 2017 with the assignment of Series 1-2017. The issuance of Series 2-2018 was completed on 29 January 2018. The Series 2-2018 portfolio is static and consisted of 22,253 loans with approximately EUR 311 million of receivables as of 31 December 2017. The portfolio is split between salary assignment (36.9%), pension assignment (43.6%) and payment delegation (19.5%) loans.

The rating of the Class A Notes addresses the timely payment of interest and ultimate repayment of principal on or before the final maturity date falling in October 2039. The rating is based on DBRS’s review of the following analytical considerations:

-- The available credit enhancement in the form of subordination, reserves and excess spread;
-- The ability of the transaction’s structure to withstand stressed cash flow assumptions in order to timely pay interest and ultimately repay principal under the Class A Notes on or before the legal maturity date according to the terms of the transaction documents;
-- IBL’s financial situation and its capabilities with respect to originations, underwriting and servicing;
-- The role of Zenith Service S.p.A. as the appointed back-up servicer and its capabilities in that respect;
-- 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 opinion that address the assignment of the assets to the Issuer and the other features, that, more generally, are consistent with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The transaction was modelled in Intex Deal Maker.

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” (18 December 2017).

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

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 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 this rating include: static gross loss analysis by quarterly vintages from 2004; static recovery analysis by quarterly vintages from 2004; and dynamic prepayment analysis by quarterly vintages from 2004.

All information used for this rating was sourced by IBL directly or indirectly through the transaction arranger, Banca IMI S.p.A.

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 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:

Probability of Default Rates Used (PD): 22.7% for an AA (low) (sf) scenario, a 25% and 50% increase on PD.
Recovery Rates Used: 17.9% for an AA (low) (sf) scenario.
Loss Given Default (LGD) Rates Used: 82.1% for an AA (low) (sf) scenario, a 25% and 50% increase in LGD.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the base case PD or LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (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 A (high) (sf).
-- A hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD by 25% and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
-- A hypothetical increase of the base case PD by 50% and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
-- A hypothetical increase of the base case PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (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: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Chuck Weilamann, Managing Director
Initial Rating Date: 29 January 2018

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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
-- Interest Rate Stresses 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.