DBRS Upgrades Rating of Locat SV S.r.l. - Series 2016

DBRS Ratings Limited (DBRS) upgraded the rating of the Class A Notes issued by Locat SV S.r.l. - Series 2016 (the Issuer or Locat SV 9) to A (high) (sf) from A (sf).

The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date falling in December 2042.

The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the September 2018 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (high) (sf) rating level.

Locat SV 9 is a securitisation of lease receivables backed by financial lease contracts granted by UniCredit Leasing S.p.A. to corporations, small- and medium-sized businesses and individual enterprises with registered offices in Italy. The transaction closed in November 2016 when the SPV issued one class of floating-rate notes and one class of variable return notes, namely Class A Notes and Class B Notes.

PORTFOLIO PERFORMANCE
As of September 2018, loans that were two- to three-months in arrears represented 1.1% of the outstanding portfolio balance, up from 0.5% in September 2017. The 90+ delinquency ratio was 1.5%, up from 1.1% in September 2017. The cumulative default ratio was 1.6%, increasing from 0.5% in September 2017.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 15.9% and 83.4% respectively.

CREDIT ENHANCEMENT
As of the September 2018 payment date, credit enhancement to the Class A Notes was 42.5%, up from 30.6% at the DBRS initial rating. Credit enhancement to the Class A Notes is provided by the overcollateralisation of the outstanding collateral portfolio and includes the debt service reserve, which provides full credit support to the structure. The debt service reserve is available to pay senior fees and expenses and missed interest on the Class A Notes and is currently at its target level of EUR 24.8 million, which is 1.5% of the outstanding balance of the Class A Notes.

BNP Paribas Securities Services SCA/Milan acts as the account bank for the transaction with UniCredit S.p.A. acting as the collection account bank. Based on the DBRS private ratings of BNP Paribas Securities Services SCA/Milan and UniCredit S.p.A., and the downgrade provisions outlined in the transaction documents, DBRS considers the risk arising from the exposure to the banks 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 ratings 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.

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 these ratings include investor reports provided by Securitisation Services S.p.A., servicer reports provided by UniCredit Leasing S.p.A. and loan-level data provided by the European DataWarehouse GmbH.

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 October 2017, when DBRS confirmed the A (sf) rating of the Class A Notes.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with 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 of receivables for the Issuer are 15.9% and 83.4%.
-- At the A (high) (sf) rating level, the corresponding PD and LGD are 46.1% and 83.4%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to fall to A (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to fall to BBB (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to BBB (low) (sf).

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)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

For further information on DBRS historic 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: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 14 November 2016

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Interest Rate Stresses for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Rating CLOs and CDOs of Large Corporate Credit

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.