DBRS Takes Rating Actions on Four Asset-Backed European Securitisation Transactions

DBRS Ratings Limited (DBRS) took the following rating actions on the Notes issued by Asset-Backed European Securitisation Transaction Ten S.r.l. (A-BEST 10), Asset-Backed European Securitisation Transaction Twelve S.r.l. (A-BEST 12), Asset-Backed European Securitisation Transaction Fourteen S.r.l. (A-BEST 14) and Asset-Backed European Securitisation Transaction Fifteen S.r.l. (A-BEST 15):

A-BEST 10:
-- Class B Notes upgraded to AAA (sf)
-- Class C Notes upgraded to AAA (sf)
-- Class D Notes upgraded to AAA (sf)

A-BEST 12:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (high) (sf)

A-BEST 14:
-- Class A Notes confirmed at AA (sf)
-- Class B Notes confirmed at A (sf)
-- Class C Notes confirmed at BBB (high) (sf)
-- Class D Notes confirmed at BB (high) (sf)
-- Class E Notes upgraded to BB (low) (sf)
-- Commingling Reserve Facility confirmed at BBB (high) (sf)

A-BEST 15:
-- Class A Notes confirmed at AA (sf)
-- Class B Notes confirmed at AA (low) (sf)
-- Class C Notes confirmed at BBB (sf)
-- Class D Notes confirmed at BBB (low) (sf)
-- Class E Notes upgraded to BB (sf)
-- Commingling Reserve Facility confirmed at BBB (sf)

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies and defaults.
-- Probability of Default (PD), Recovery Rate (RR), and Prepayment Loss assumptions.
-- The credit enhancement (CE) available to the Notes to cover the expected losses at their respective rating levels.

All four transactions are securitisations of portfolios 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.

A-BEST 10
The transaction portfolio is non-revolving, and the Class A Notes were fully repaid in June 2018. DBRS expects the remaining Notes will be repaid within the next 12 months. As of 22 June 2018, loans more than 90 days delinquent as a percentage of the outstanding portfolio balance were at 0.14%. The cumulative default ratio was 0.38% of the portfolio balance at the transaction closing. The performance is well within DBRS’s expectations. Based on the remaining portfolio’s composition, DBRS has updated the PD and RR assumptions to 2.1% and 12.6%, respectively.

The CE available to the remaining rated Notes has increased significantly as the transaction continues to deleverage. As of the 10 July 2018 payment date, the CE to the Class B, C and D Notes increased to 75.5%, 56.5% and 47.0%, respectively.

A-BEST 12
The transaction’s revolving period ended in October 2017 the transaction is now amortising. As of 22 June 2018, loans more than 90 days delinquent increased slightly to 0.18%. The cumulative default ratio as a percentage of the portfolio balance at the transaction closing plus replenished loan balance was 0.38%. The transaction’s performance is also within DBRS’s expectations. Based on the remaining portfolio’s composition, DBRS has updated the PD and RR assumptions to 2.4% and 12.5%, respectively.

The CE available to the Class A and B Notes increased to 21.9% and 7.8% from 14.0% and 5.0%, respectively, following the deleveraging of the transaction.

A-BEST 14
The transaction closed in May 2016, and the Notes were retranched in November 2016 and April 2018. Currently, the transaction is in the revolving period, which is scheduled to end in May 2020. As of 22 June 2018, loans more than 90 days delinquent were 0.06% of the outstanding pool balance. The cumulative default ratio as a percentage of the portfolio balance at the transaction closing plus replenished loan balance was 0.18%. The performance is within DBRS’s expectations. DBRS has maintained the PD and RR assumptions at 3.0% and 12.9%, respectively.

As the transaction is revolving, the CE available to the Class A, B, C, D and E Notes remains at 10.0%, 7.0%, 5.0%, 2.4% and 1.3%, respectively, same as at the April 2018 amendment.

A-BEST 15
The transaction closed in May 2017 and went through restructuring in December 2017 when the Notes coupons were amended to floating rates and an interest rate swap was implemented into the structure. Currently, the transaction is in the revolving period, which will end in May 2019. As of 22 June 2018, loans more than 90 days delinquent were 0.11% of the outstanding pool balance. The cumulative default ratio as a percentage of the portfolio balance at the transaction closing plus replenished loan balance was 0.11%. The performance is within DBRS’s expectations. DBRS has maintained the PD and RR assumptions at 3.0% and 12.9%, respectively.

As the transaction is revolving, the CE available to the Class A, B, C, D and E Notes remains at 9.0%, 8.5%, 4.2%, 2.7% and 1.7%, respectively.

The source of CE to each set of Notes is their respective subordinated Notes. The increase in the CE prompted the upgrades of the Notes in A-BEST 10 and 12.

Each transaction benefits from a non-amortising Cash Reserve currently at their respective target amounts. A-BEST 10 has a Cash Reserve of EUR 7.0 million, A-BEST 12 EUR 11.2 million, A-BEST 14 EUR 23.1 million, and A-BEST 15 EUR 14.0 million. The Cash Reserve is available to cover senior expenses and interest on the Notes, but do not provide CE until the last payment date when the Notes are to be paid in full.

The Commingling Reserve in each transaction was funded by FCA Bank at the transaction closing. It can only be drawn when the Servicer could not perform daily transfer of the collections as a result of the FCA Bank default or when the FCA Bank could not indemnify the transaction any non-payment of the insurance premium. DBRS confirmed the rating of the Commingling Reserve Facility in A-BEST 14 at BBB (high) (sf), and the rating of the one in A-BEST 15 at BBB (sf) in this rating review. The ratings of the Commingling Reserve Facilities incorporates 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 the timely interest payments to the facility.

In this review, DBRS reduced its assumption on the loss of insurance premium payment not covered by the Commingling Reserve due to borrower prepayments, following the upgrade of FCA Bank’s DBRS private rating. The rating upgrade of FCA Bank reduces the likelihood that FCA Bank will not indemnify the lost insurance premium payment. Consequently, DBRS reduced the relevant loss stress in the cash flow analysis to 50% in the BBB (high) (sf) rating scenario and to 25% in the BBB (sf) and BBB (low) (sf) rating scenarios and eliminated the stress in non-investment grade rating scenarios. The reduced loss stress prompted the upgrades of the Class E Notes in A-BEST 14 and A-BEST 15.

Elavon Financial Services DAC (Elavon) acts as the Account Bank in A-BEST 10, 12 and 14. The DBRS private rating of Elavon meets the Minimum Institution Rating criteria given the rating assigned to the respective senior Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

BNP Paribas Securities Services, Milan Branch, is the Account Bank in A-BEST 15. Its DBRS private rating meets the Minimum Institution Rating criteria given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

UniCredit Bank AG (UniCredit) is the swap counterparty in A-BEST 10. The DBRS private rating of UniCredit is below the first rating threshold, given the ratings assigned to the Notes, and UniCredit is ready to post collateral when the swap is in-the-money for the Issuer, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

FCA Bank is the swap counterparty in A-BEST 12 and 15. UniCredit and Crédit Agricole Corporate & Investment Bank S.A. are the joint standby swap counterparties in A-BEST 12. Crédit Agricole Corporate & Investment Bank S.A. is the sole standby swap counterparty in A-BEST 15. The DBRS private rating of FCA Bank does not meet the first rating threshold given the rating assigned to the senior Notes as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. The swap counterparty risk is mitigated through the existence of the standby swap counterparties.

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 cashflow analysis were both conducted. For the A-BEST 14 and A-BEST 15 transactions, due to the inclusion of a revolving period in the transactions, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

Other methodologies referenced in these transactions 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 monthly investor reports from U.S. Bank Trustees Limited and Crédit Agricole Corporate & Investment Bank S.A., and the monthly loan-by-loan data from European DataWarehouse GmbH.

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

At the time of each transaction’s initial ratings, 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 A-BEST 10 took place on 14 June 2018 when DBRS discontinued the Class A Notes rating, and, on 10 August 2017, confirmed the Class B Notes and upgraded the Class C and D Notes. The last rating action on A-BEST 12 took place on 10 August 2017 when DBRS confirmed the Class A Notes and upgraded the Class B Notes. The last rating action on A-BEST 14 took place on 16 April 2018 when DBRS downgraded the Class A, B, C and E Notes and assigned a rating to the Class E Notes and Commingling Reserve Facility. The last rating action on A-BEST 15 took place on 13 December 2017 when DBRS confirmed the Class A and C Notes and upgraded the Class B, D and E Notes, and, on 16 February 2018, upgraded the Commingling Reserve Facility.

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):

DBRS expected a Base Case PD and RR for the portfolios based on a review of the current assets or the most stressful portfolio if the transaction is revolving. Adverse changes to asset performance may cause stresses to Base Case assumptions and, therefore, have a negative effect on credit ratings.

-- For A-BEST 10, the Base Case PD is 2.1% and RR is 12.6%, which translates to an 87.4% of loss severity.
-- For A-BEST 12, the Base Case PD is 2.4 % and RR is 12.5%, which translates to an 87.5% of loss severity.
-- For A-BEST 14 and 15, the Base Case PD is 3.0% and RR is 12.9%, which translates to an 87.1% of loss severity.

The following four stressed scenarios are applied:
Scenario 1: a 25% increase on the PD base case.
Scenario 2: a 50% increase on the PD base case.
Scenario 3: an increase of loss severity to 100%.
Scenario 4: an increase of loss severity to 100% and a 25% increase on the PD base case.
Scenario 5: an increase of loss severity to 100% and a 50% increase on the PD base case.

The expected ratings for the Notes under each stress scenario are:

A-BEST 10
Class B Notes: AAA (sf), AAA (sf), AAA (sf), AAA (sf), AAA (sf)
Class C Notes: AAA (sf), AAA (sf), AAA (sf), AAA (sf), AAA (sf)
Class D Notes: AAA (sf), AAA (sf), AAA (sf), AAA (sf), AAA (sf)

A-BEST 12
Class A Notes: AAA (sf), AAA (sf), AAA (sf), AAA (sf), AAA (sf)
Class B Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (sf), A (high) (sf)

A-BEST 14
Class A Notes: A (high) (sf), A (sf), AA (low) (sf), A (sf), BBB (high) (sf)
Class B Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (sf)
Class C Notes: BBB (sf), BBB (low) (sf), BBB (high) (sf), BBB (sf), BB (high) (sf)
Class D Notes: BB (low) (sf), B (high) (sf), BB (high) (sf), B (high) (sf), B (low) (sf)
Class E Notes: B (low) (sf), B (low) (sf), B (high) (sf), B (low) (sf), B (low) (sf)

A-BEST 15:
Class A Notes: A (high) (sf), A (low) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf)
Class B Notes: A (sf), A (low) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf)
Class C Notes: BBB (sf), BB (high) (sf), BBB (sf), BBB (low) (sf), BB (high) (sf)
Class D Notes: BB (high) (sf), BB (low) (sf), BB (high) (sf), BB (sf), B (sf)
Class E Notes: B (sf), B (low) (sf), BB (low) (sf), B (low) (sf), B (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: Kevin Ma, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 October 2014 for A-BEST 10; 10 August 2015 for A-BEST 12; 16 May 2016 for A-BEST 14; 16 May 2017 for A-BEST 15.

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The rating methodologies used in the analysis of these transactions 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
Master European Structured Finance Surveillance Methodology
Operational Risk Assessment for European Structured Finance Originators
Operational Risk Assessment for European Structured Finance Servicers
Interest Rate Stresses for European Structured Finance Transactions
Derivative Criteria 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.