DBRS Confirms Rating of Adriano Lease Sec. S.r.l. - Adriano Lease II

DBRS Ratings Limited (DBRS) confirmed the A (sf) rating of the Class A Notes issued by Adriano Lease Sec. S.r.l. - Adriano Lease II (the Issuer).

The rating of the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the final legal maturity date in January 2049.

The confirmation 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 October 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 (sf) rating level.

The Issuer is a securitisation of lease receivables granted by Mediocredito Italiano S.p.A. (Mediocredito) to corporate clients, small businesses and individual enterprises with their registered offices in Italy. Mediocredito acts also as the Servicer of the transaction. The transaction, which follows the standard structure under the Italian securitisation law, closed in November 2017 when the special-purpose vehicle issued one senior class of floating-rate notes (the Class A Notes) and one junior class of floating-rate and additional-return notes (the Class B Notes).

PORTFOLIO PERFORMANCE
As of September 2018, loans that were two-to three-months in arrears represented 0.3% of the outstanding portfolio balance whereas the 90+ delinquency ratio was 0.4%, up from 0.1% in March 2018. As of September 2018, the cumulative default ratio was 0.4%.

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 18.3% and 81.6%, respectively.

CREDIT ENHANCEMENT
The Class A Notes benefit from credit enhancement provided by the outstanding performing portfolio balance. The credit enhancement has increased as the transaction deleverages. As at the October 2018 payment date, credit enhancement to the Class A Notes was 37.1%, up from 32.0% at the transaction’s closing.
The transaction benefits from an amortising liquidity reserve, which was funded at closing through collections and recoveries for an amount of EUR 43 million, equal to 1.5% of the Class A Notes’ original outstanding balance. The reserve is available to cover senior fees, expenses and any shortfall of interest on the Class A Notes. The reserve is equal to 1.5% of the Class A Notes’ outstanding balance, floored at EUR 22 million. It is currently at its target level of EUR 36 million.

Intesa Sanpaolo S.p.A. is the Account Bank of the transaction. The DBRS public rating of the Account Bank is consistent with the Minimum Institution Rating, given 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.

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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for this rating include investor and payment reports provided by Securitisation Services S.p.A., servicer reports provided by Mediocredito 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 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 Ilaria Maschietto.

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 loans for the Issuer are 18.3% and 81.6%, 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 of 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 BB (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 BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Alfonso Candelas, Senior Vice President
Initial Rating Date: 30 November 2017

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

-- 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
-- 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.