DBRS Confirms Rating of Class A Notes Issued by Diaz Securitisation S.r.l.

DBRS Ratings Limited (DBRS) confirmed its A (sf) rating of the Class A notes issued by Diaz Securitisation S.r.l. (the Issuer).

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- The overall portfolio performance, in terms of delinquencies and net losses, as of the September 2018 payment date;
-- No purchase termination event has occurred;
-- The updated probability of default (PD) and loss given default (LGD) assumptions considering the current collateral pool; and
-- The current level of credit enhancement (CE) available to the Class A notes to cover the expected losses assumed in line with the A (sf) rating level.

The rating of the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the Final Maturity Date in December 2034.

The Issuer is an Italian securitisation of salary assignment loans, pension assignment and payment delegation loans established in April 2017 and sponsored by Banca Progetto S.p.A.

The transaction’s initial portfolio consisted of loans transferred to the Issuer from Arianna SPV S.r.l. (the Arianna portfolio), a DBRS-rated securitisation established in 2013 and called in April 2017. The Arianna portfolio was originated by Consum.it S.p.A. directly and through specialised dealers (Mandataries).

The transaction has a 12-month revolving period ending in October 2018, and the Issuer has subsequently purchased additional receivables originated and sub-serviced by Pitagora S.p.A. (Pitagora) and Sigla S.p.A. (Sigla), who were also among the Mandataries of the Arianna portfolio. The Arianna portfolio is serviced by Zenith Service S.p.A. and sub-serviced by the Mandataries.

The Class A notes were partially amortised from EUR 126.8 million at closing to EUR 91.3 million in September 2017, prior to the establishment of the revolving period. As at the September 2018 payment date, the EUR 99.0 million portfolio consisted of loans granted to pensioners (40.6% of the portfolio loan balance), employees from the private (18.7%) and public sectors (21.6%), and government employees (19.1%); to this, additional receivables with an aggregate outstanding balance of EUR 11.9 million were added.

PORTFOLIO PERFORMANCE
As at the September 2018 payment date, loans delinquent by one, two and three months represented 4.4%, 0.9% and 0.5% of the outstanding principal balance of the portfolio, respectively, while loans delinquent for more than three months represented 0.6% of the portfolio. The Cumulative Net Default Ratio was 0.5%.

REVOLVING PERIOD
With the transaction amendments executed in September 2017, a 12-month revolving period ending in October 2018 was introduced, during which the Issuer may use collection proceeds to acquire additional receivables originated by Pitagora and Sigla, subject to certain eligibility criteria and portfolio concentration limits. As of the September 2018 payment date, additional receivables totalling EUR 50.3 million were purchased.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the current pool and updated its base case PD and LGD assumptions to 9.2% and 42.7%, respectively.

CREDIT ENHANCEMENT
CE is provided by the subordination of the junior obligations and the Cash Reserve Account. As at the September 2018 payment date, CE to the Class A notes was 17.8%.

The Cash Reserve Account, currently funded with EUR 1.3 million, is available to cover senior expenses and missed interest payments on the Class A notes. The required level of the Cash Reserve Account is set at 1.2% of the portfolio balance.

Additionally, a prepayment reserve is available to cover prepayment losses related to capitalised fees that may be retained upon prepayment, with a current balance of EUR 1.7 million. The prepayment reserve target amount is equal to 1.5% of the portfolio balance.

BNP Paribas Securities Services SCA, Milan branch (BNP Milan) is the Account Bank for the transaction. On the basis of the DBRS private rating of BNP Milan and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to the Account Bank to be consistent with the rating assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “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 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 not conducted as the legal documents have remained unchanged since the most recent rating action.

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 the monthly investor reports provided by Securitisation Services S.p.A., the calculation agent, monthly servicer reports provided by Zenith Services S.p.A., the servicer, and loan-level data provided by the European DataWarehouse GmbH and the servicer.

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

At the time of the initial rating 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 is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Matt Albin.

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 lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- The Base Case PD and LGD of the current pool are 9.2% and 42.7%, respectively. At the A (sf) rating level, the corresponding PD is 31.5% and the LGD is 59.9%,

-- The risk sensitivity overview below illustrates the ratings expected for the Class A notes if the PD and LGD increase by certain percentages over the base case assumptions. For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to decrease to A (low) (sf), all else being equal. If the PD increases by 50%, the rating of the Class A notes would be expected to decrease to A (low) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected decrease to BBB (sf), all else being equal.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: Matt Albin, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 September 2017

DBRS Ratings Limited
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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

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- 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.