DBRS Takes Rating Actions on Asset-Backed European Securitisation Transaction Fourteen Following Amendment

DBRS Ratings Limited (DBRS) took the following rating actions on Asset-Backed European Securitisation Transaction Fourteen S.r.l. (A-BEST 14) following an amendment to the transaction (the Amendment):

-- Class A Asset-Backed Fixed Rate Notes (Class A Notes) downgraded to AA (sf) from AAA (sf).
-- Class B Asset-Backed Fixed Rate Notes (Class B Notes) downgraded to A (sf) from AA (sf).
-- Class C Asset-Backed Fixed Rate Notes (Class C Notes) downgraded to BBB (high) (sf) from A (sf).
-- Class D Asset-Backed Fixed Rate Notes (Class D Notes) downgraded to BB (high) (sf) from BBB (high) (sf).
-- Assigned a B (sf) rating to the newly issued Class E Asset-Backed Fixed Rate Notes (Class E Notes).
-- Assigned a BBB (high) (sf) rating to the Commingling Reserve Facility (CR Facility).

The Rated Notes are the Class A, B, C, D, and E Notes. The Notes are the unrated Class M1 and M2 Notes along with the Rated Notes.

The rating actions follow the review of the Amendment, executed on 12 April 2018, and settled on 16 April 2018 (also the Second Re-tranching Date), and are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies and defaults.
-- Probability of Default (PD) and Recovery Rate (RR) assumptions for the remaining collateral pool.
-- The credit enhancement (CE) available to the Notes to cover the expected losses at their respective rating levels.
-- The structural amendments involved.

A-BEST 14, which closed in May 2016, is a securitisation of portfolio of Italian auto loans originated and serviced by FCA Bank S.p.A. (FCA Bank), a joint venture that is 50% owned by Fiat Group and 50% owned by Crédit Agricole Consumer Finance.

The Amendment includes:

-- The increase of the portfolio size through additional notes subscriptions.
-- The re-tranching of the Class A, B, C, and D Notes and the issuance of the Class E Notes.
-- The reduction of the Class A, B, C, D, and M1 Notes fixed-rate coupons to 0.40%, 0.75%, 2.50%, 3.43%, and 7.17%, respectively, along with the 4.64% fixed-rate coupon on the Class E Notes.
-- The extension of the Revolving Period to May 2020.
-- The increase of the Cash Reserve and the Commingling Reserve.
-- The change in the priority of the CR Facility interest payment.
-- The change in the Cumulative Portfolio Limits.
-- The change in the Purchase Termination Event, in terms of the reductions in the Three-Month Rolling Average Delinquency Rate and Gross Cumulative Default Ratio thresholds.

On 24 March 2018, the size of the portfolio increased to EUR 1.65 billion. On the Second Re-tranching Date, the issuance of the Class E Notes and the additional subscriptions along with re-tranching of the Notes took place to purchase the additional receivables. Following the re-tranching, the size of the Class A and D Notes increased, while the size of the Class B, C, and M1 Notes decreased. The size of the Class E Notes issuance was EUR 18.2 million. The transaction portfolio will continue to revolve until the payment date falling in May 2020.

Both the Cash Reserve and the Commingling Reserve amounts increased following the upsize of the portfolio. The Cash Reserve amount remained at 1.4% of the portfolio balance, and increased to EUR 23.1 million from EUR 15.4 million. The Commingling Reserve amount, funded by FCA Bank, the Commingling Reserve Facility Provider, remained at 3.5% of the portfolio balance during the Revolving Period, and increased to EUR 57.8 million from EUR 38.4 million. The fixed interest rate paid to the Commingling Reserve Facility Provider on the Commingling Reserve commitment amount was decreased to 1% from 2%. The priority of this interest payment was changed to after the interest payment of the Class C Notes from after the Class D Notes.

In terms of the amendments to certain Cumulative Portfolio Limits, the new limits on the total Net Present Value (NPV) of the receivables, as a percentage of total NVP of the receivables sold to the transaction, for the purchase of used car, for the VAT borrowers, for borrowers residing in southern Italy, and with the payment method by Postal Payment Slip and SISAL Payment Slip are 16%, 20%, 35%, and 15%, respectively.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
Prior to the Second Re-tranching Date, the portfolio performance was within DBRS’s expectations. The percentage of loans in arrears was low and the cumulative default rate was low at 0.2%.

DBRS received the updated monthly static default data in three categories: new vehicle loans, new vehicle loans (VAT borrowers) and used vehicle loans ranging from 2008 to 2017. Data is grouped into vintages by the date of origination of the loan. All vintage data is used to extrapolate and derive the overall base-case default rate in each category. Because of the revolving period, no seasoning credit was factored into the base-case default rate projection as the degree of seasoning is expected to evolve over time. DBRS determined the most stressed portfolio composition based on the amended used car Cumulative Portfolio Limits, and updated its base-case default rate assumption to 3.03% from 3.08%.

DBRS also received the updated monthly static recovery data on the FCA Bank loan portfolio from 2008 to 2017, grouped into vintages based on the date of the loans classified as defaulted. The data of each vintage was used to determine the base-case recovery rate according to the relevant DBRS methodology. After considering the quality and trend of data, DBRS constructed base cases for each receivables type and updated the ultimate recovery rate to 12.9% (i.e., loss severity of 87.1%) from 13.0% for all loan types.

CREDIT ENHANCEMENT
The CE available to the Class A, B, C, and D Notes has reduced following the re-tranching, resulting in the downgrades of those Notes. The CE of the Class A Notes reduced to 10.0% from 16.3%, the CE of the Class B Notes reduced to 7.0% from 11.7%, the CE of the Class C Notes reduced to 5.0% from 7.8%, and the CE of the Class D Notes reduced to 2.4% from 4.8%. The CE of the Class E Notes is 1.3%. The main source of CE is the subordinated Notes. The Cash Reserve will provide credit support to the transaction with any outstanding amount being distributed as principal to the Notes on a payment date when, including the Cash Reserve, the Class A, B, C, and D Notes can all be redeemed in full, or on the final maturity date.

Elavon Financial Services DAC, U.K. Branch (Elavon UK) is the Account Bank to the transaction. Elavon UK has a private DBRS Issuer and Senior Debt rating, along with an “A” replacement rating trigger set in the transaction documentation that meets the Minimum Institution Rating criteria given the AA (sf) rating assigned to the Class A Notes.

COMMINGLING RESERVE FACILITY
The CR Facility was funded by FCA Bank. The funds are deposited with the Account Bank and the Issuer pays a fixed 1% interest on the balance of the CR Facility to FCA Bank through the Pre-Trigger Notice Interest Priority of Payments after the Class C Notes interest payment and before the Class D Notes interest payment or through the Post-Trigger Notice Priority of Payments after the Class C Notes are repaid in full.

The CR Facility balance does not amortise during the transaction’s Revolving Period. After the Revolving Period, the CR Facility balance will amortise to the lower of EUR 57.8 million and the scheduled collections for the following collection period assuming a 15% conditional prepayment rate. The amortised CR Facility amount will be paid back to FCA Bank outside of the transaction’s priority of payments. The CR Facility target balance will reduce to zero when Class A, B, and C are fully repaid. The CR Facility could only be drawn when FCA Bank is insolvent resulting in 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 FCA Bank, the Account Bank where the funds are deposited, 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 deemed FCA Bank and the Class C Notes to be the main rating factors, and assigned a BBB (high) (sf) rating to the Commingling Reserve Facility.

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 transactions 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 conducted, including the relevant amendment documents, the transfer documents and the legal opinions.

Other methodologies referenced in the 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 used for these ratings include the performance vintage data, the loan-by-loan data, and the portfolio stratification tables provided by FCA Bank.

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

At the time of the initial rating, 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.

The last rating action on this transaction took place on 10 August 2017, when DBRS confirmed the rating of the Class A Asset-Backed Fixed Rate Notes and upgraded the ratings of the Class B Asset-Backed Fixed Rate Notes, Class C Asset-Backed Fixed Rate Notes, and Class D Asset-Backed Fixed Rate Notes to AA (sf), A (sf) and BBB (high) (sf), respectively.

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):

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 increases 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 (sf), assuming no change in the LGD. Furthermore, if the PD increases by 50% and the LGD increases to 100%, the rating on the Class A Notes would be expected to be at A (low) (sf).

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

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

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

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

Class E Notes risk sensitivity:
-- LGD increases to 100%, expected rating below B (sf)
-- 25% increase in PD, expected rating below B (sf)
-- 50% increase in PD, expected rating below B (sf)
-- 25% increase in PD and LGD increases to 100%, expected rating below B (sf)
-- 50% increase in PD and LGD increases to 100%, expected rating below B (sf)

The rating sensitivity of the Commingling Reserve Facility will mainly be determined by the rating movements on the Class C Notes or DBRS private rating on FCA Bank.

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, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Dates: 16 May 2016

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 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.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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