DBRS Assigns Rating to Auto ABS Italian Loans 2018-1 S.r.l.

DBRS Ratings Limited (DBRS) assigned a AA (high) (sf) rating to the Class A Notes issued by Auto ABS Italian Loans 2018-1 S.r.l., a limited liability company organised under the laws of the Republic of Italy.

The Notes are backed by a EUR 742 million pool of loans for new and used motor vehicles granted and serviced by Banca PSA Italia S.p.A. (BPSA) to both private individuals and commercial customers in Italy. BPSA is a joint venture equally owned by Banque PSA Finance and Santander Consumer Bank S.p.A. BPSA will also act as Servicer for the transaction.

The transaction has a scheduled revolving period of 18 months from the issue date, where principal collections may be used to purchase new receivables from the seller. The purchase of additional receivables is subject to certain concentration limits that stipulate thresholds for borrower concentration, used vehicles, commercial borrowers, weighted-average interest rate and tenor, amongst others.

The ratings are based on a review by DBRS of the following analytical considerations:
-- Transaction capital structure including form and sufficiency of available credit enhancement;
-- Credit enhancement levels are sufficient to support DBRS-projected expected cumulative net losses under various stress scenarios;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the rating assigned to the Class A Notes addresses the payment of timely interest on a monthly basis and principal by the legal final maturity date;
-- BPSA’s capabilities with regard to originations, underwriting, servicing and its financial strength;
-- DBRS conducted an operational risk review of BPSA’s premises in Milan, Italy and deems it to be an acceptable servicer;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the seller’s portfolio;
-- The sovereign rating of the Republic of Italy, currently at BBB (high); and
-- The transaction’s consistency of the legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that address the true sale of the assets to the Issuer and non-consolidation of the special-purpose vehicle with the seller.

The transaction 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. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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

DBRS received data sourced from BPSA and provided through the transaction arranger, Banco Santander. The following data sets showed the performance of the loans by vehicle subset (e.g. new/used and private / commercial borrowers) originated by BPSA:
-- Quarterly static default and recovery data from Q1 2008 to Q2 2017 (where performance of individuals and VAT borrowers is further separated).
-- Dynamic delinquency, prepayment and origination data from Q1from 2008 to Q2 2017.
-- Stratification tables in relation to the loan pool as at 7 February 2018 and its related contractual amortisation profile.

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

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 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”):

-- Expected Default Rate used: Expected default of 3.2%, a 25% and 50% increase on the expected default.
-- Loss Given Default (LGD) used: LGD of 79.9% a 25% increase.
DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the expected default or the LGD by 25%, ceteris paribus, would each lead to a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the expected default by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
-- A hypothetical increase of the expected default and the LGD by 25% would lead to the downgrade of the Class A Notes to A (sf).
--A hypothetical increase of the expected default by 50%, with a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to the downgrade of the Class A Notes to BBB (high) (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: Alex Garrod – Senior Vice President, EU ABS
Rating Committee Chair: Christian Aufsatz – Managing Director, Head of European Structured Finance
Initial Rating Date: 26 February 2018

DBRS Ratings Limited
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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.
-- Derivative Criteria for European Structured Finance Transactions.
-- 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.