DBRS Confirms Ratings of Sunrise S.r.l. - Series 2015-3 and Series 2016-2

DBRS Ratings Limited (DBRS) confirmed the ratings of two Sunrise S.r.l. transactions (the Transactions), as follows:

Sunrise S.r.l. - Series 2015-3 (Sunrise 2015-3)
-- Class M Notes at AAA (sf)

Sunrise S.r.l. - Series 2016-2 (Sunrise 2016-2)
-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)
-- Class M Notes at AA (sf)

The ratings of the Notes address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in May 2035 (Sunrise 2015-3) and June 2041 (Sunrise 2016-2).

The confirmations follow an annual review of the Transactions and are based on the following analytical
considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining
receivables.
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective
rating levels.

The Transactions are securitisations of unsecured Italian consumer loan receivables originated by Agos Ducato S.p.A. (Agos). The portfolios consist primarily of loans granted for the purchase of vehicles and personal loans. They also contain flexible loans that permit the borrower to skip one monthly instalment per year (up to a maximum of five times during the life of the loan) and to modify the amount of the monthly instalments. The transactions envisaged a revolving period as part of their structure: Sunrise 2015-3 had a 12-month revolving period, which ended in November 2016, while Sunrise 2016-2 had an 18-month revolving period, which ended in June 2018.

PORTFOLIO PERFORMANCE
As of November 2018, the gross cumulative default ratio of Sunrise 2015-3 (as a percentage of the original portfolio plus all subsequent portfolios purchased) was 2.0%, of which 4.8% has been recovered, and the 90+ delinquency ratio is 1.5%. Gross cumulative defaults represented 1.1% of the aggregated Sunrise 2016-2 original portfolio, recoveries have been 3.7% and the percentage of loans more than 90 days delinquent was 0.9%.

BASE CASE ASSUMPTIONS
DBRS maintained its product-specific Base Case assumptions while updating the portfolio compositions to reflect the current respective portfolios:
-- Sunrise 2015-3: PD of 8.9% and Recovery Rate of 11.3%;
-- Sunrise 2016-2: PD of 8.4% and Recovery Rate of 11.6%.

CREDIT ENHANCEMENT
CE is provided by the subordination of the junior obligations and the Cash Reserve Account through a Principal Deficiency Ledger mechanism. As of November 2018, and since closing:

Sunrise 2015-3:
CE for the Class M Notes increased to 80.9% from 25.0%.

Sunrise 2016-2:
CE for the Class A1 and A2 Notes increased to 55.4% from 41.3%, while CE for the Class M Notes increased to 33.9% from 24.3%. Along with the start of amortisation following the revolving period, these increases additionally reflect the increase in the size of the cash reserve up to its target level after closing using excess spread.

The Transactions benefit from credit and liquidity support in the form of two reserves: the Payment Interruption Risk Reserve Account is available to cover senior expenses and missed interest payments on the rated Notes, and is sized at EUR 9.5 million and EUR 6.5 million for Sunrise 2015-3 and Sunrise 2016-2, respectively. The Cash Reserve Account can additionally be used to offset the principal losses of defaulted receivables and has a current balance of 3% of the initial portfolio balance for Sunrise 2015-3 and 3% of the current portfolio balance for Sunrise 2016-2. A Commingling Reserve is also available for each transaction and will become part of the Interest Available Funds in the event of servicer insolvency. Both transactions’ reserves are currently at their target levels.

The structures also envisage a Rata Posticipata Cash Reserve which mitigates the liquidity risk arising from the flexible loans in the Transactions. This reserve is only funded if, for two consecutive payment dates, the outstanding balance of the flexible loans in relation to which the debtors have exercised the contractual right to postpone the payments is higher than 5% of the outstanding balance of all flexible loans. As of the November 2018 payment date, this condition had not been breached for any transaction.

Crédit Agricole Corporate and Investment Bank SA, Milan Branch (CA-CIB, Milan) acts as the Account Bank for the Transactions. Based on the DBRS private rating of CA-CIB, Milan, the downgrade provisions outlined in the transaction documents and structural mitigants, DBRS considers the risk arising from the exposure to CA-CIB, Milan to be consistent with the ratings assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Crédit Agricole Corporate and Investment Bank S.A. (CA-CIB) acts as the Swap Counterparty for the Transactions. Based on the DBRS private rating of CA-CIB and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to CA-CIB to be consistent with the ratings assigned to the Notes as described in DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.

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.

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 investor reports provided by CA-CIB, Milan, servicer reports provided by Agos and data from 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 ratings of Sunrise 2015-3 and Sunrise 2016-2, 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 Sunrise 2015-3 took place on 9 August 2018, when DBRS discontinued its ratings of the Class A1 and A2 Notes because of repayment in full. The last full review took place on 28 November 2017, when DBRS confirmed its ratings of the Class A1 and A2 Notes at AAA (sf) and upgraded its rating of the Class M Notes to AAA (sf) from AA (sf).

The last rating action on Sunrise 2016-2 took place on 28 November 2017, when DBRS confirmed its ratings of the Class A1 and A2 Notes at AAA (sf) and upgraded its rating of the Class M Notes to AA (sf) from A (high) (sf).

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the “Base Case”):

-- DBRS expected a Base Case PD and LGD for the portfolios 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.

Sunrise 2015-3:
-- The Base Case PD and LGD of the current pool of assets of receivables, excluding sovereign stress, are 8.9% and 88.7%, respectively.

For example, if the LGD increases by 50%, the rating of the Class M Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class M Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class M Notes would be expected to remain at AAA (sf), ceteris paribus.

Class M Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
Sunrise 2016-2:
-- The Base Case PD and LGD of the current pool of assets of receivables, excluding sovereign stress, are 8.4% and 88.4%, respectively.

For example, if the LGD increases by 50%, the ratings of the Class A1 and Class A2 Notes would be expected to remain at AAA (sf) while the rating of the Class M Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the ratings of the Class A1 and Class A2 Notes would be expected to be downgraded to AA (sf) while the rating of the Class M Notes would be expected to be downgraded to A (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the ratings of the Class A1 and Class A2 Notes would be expected to be downgraded to AA (sf) while the rating of the Class M Notes would be expected to be downgraded to A (low) (sf), ceteris paribus.

Class A1 and Class A2 Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class M Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (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 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 9 November 2015 (Sunrise 2015-3); 10 November 2016 (Sunrise 2016-2)

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of these transactions 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 Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- 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.