DBRS Assigns Ratings to Quinto Sistema sec. 2017 S.r.l.

DBRS Ratings Limited (DBRS) assigned A (high) (sf) and A (low) (sf) ratings to the Class A Notes and the Class B1 Notes, respectively, issued by Quinto Sistema sec. 2017 S.r.l. (the Issuer). The Class A Notes and the Class B1 notes were issued in the context of a securitisation transaction established under Italian securitisation law (the Transaction).

Class B2 Notes and Class C Notes were also issued in the context of the Transaction but were not rated by DBRS.

The Transaction is backed by a pool of receivables related to salary and pension assignment loans and to payment delegation loans originated by Sigla S.r.l., Pitagora S.p.A., Figenpa S.p.A., ADV Finance S.p.A. and Spefin Finanziaria S.p.A. (the original lenders) and subsequently transferred to Banca Sistema S.p.A. (BS) that in turn transferred the receivables to the Issuer.

The Transaction was established on 26 April 2017. The ratings have been assigned by DBRS following some amendments that envisage some structural changes, including the introduction of a six-month ramp-up period ending in February 2019 (inclusive), during which time additional receivables may be purchased by the Issuer from BS. The new receivables will either replace the amortisation of the receivables or increase the Notes size in accordance with certain tranching requirements specified in the transaction documents.

In accordance with the amended transaction documents, the Issuer is also allowed to purchase receivables from Quinto Sistema Sec. 2016 S.r.l. (the 2016 transaction), a transaction rated by DBRS in 2016 comprising receivables originated by BS through some specialised lenders (including the original lenders). The acquisition of additional receivables (both from BS and from the 2016 transaction) is subject to certain eligibility criteria and concentration limits specified in the transaction documents. BS, as the originator of the 2016 transaction, is part of the transfer agreement and restates relevant representations and warranties with respect to the receivables that may be transferred from Quinto Sistema Sec. 2016 S.r.l.

The ratings of the Class A Notes and Class B1 Notes address the timely payment of interest and ultimate repayment of principal on or before the final maturity date. The ratings are 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 and triggers to withstand stressed cash flow assumptions in order to timely pay interest and ultimately repay the principal under the notes on or before the legal maturity date according to the terms of the transaction documents;
-- BS’s capabilities with respect to servicing;
-- The original lenders’ financial situation and their capabilities with respect to originations, underwriting and servicing;
-- The presence of Securitisation Services 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 opinions that address the assignment of the assets to the Issuer and other features, and, more generally are consistent with DBRS’s methodology: “Legal Criteria for European Structured Finance Transactions”.

The transaction was modelled 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.

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 used for this rating include: static gross loss analysis by quarterly vintages for some of the original lenders and a provisional pool-cut that includes the QS2016 portfolio.

All information used for these ratings was sourced by BS and the original lenders 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 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.

These ratings concern newly issued financial instruments. These are the first DBRS ratings on these financial instruments.

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): 28.3% for an A (high) scenario and 14.4% for an A (low) scenario, a 25% and 50% increase on PD.
Recovery Rates Used: 38.8% for an A (high) scenario and 48.3% for an A (low) scenario.
Loss Given Default (LGD) Rates Used: 61.2% for an A (high) scenario and 51.7% for an A (low) 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 (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 (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 (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 (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 (low) (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 (low) (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).

DBRS concludes that for the Class B1 notes:
-- A hypothetical increase of the base case PD or LGD by 25%, ceteris paribus, would not lead to a change of the rating of the Class B1 notes.
-- A hypothetical increase of the base case PD by 50%, ceteris paribus, would lead to a downgrade of the Class B1 notes to BBB (high) (sf).
-- A hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B1 notes to BBB (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B1 notes to BBB (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 B1 notes to BBB (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 B1 notes to BBB (sf).
-- A hypothetical increase of the base case PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B1 notes to BB (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: Paolo Conti, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 June 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
-- 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.