DBRS Confirms Ratings on Quinto Sistema Sec. 2017 S.r.l.

DBRS Ratings GmbH (DBRS) confirmed the ratings of the Class A Notes and Class B1 Notes issued by Quinto Sistema Sec. 2017 S.r.l. (the Issuer) at A (high) (sf) and A (low) (sf), respectively.

The ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date falling in December 2034.

The confirmations follows an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults and losses as of the June 2019 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels.

Quinto Sistema Sec. 2017 S.r.l. is a securitisation of receivables related to salary and pension assignment loans as well as payment delegation loans granted to Italian employees and pensioners. The receivables were initially granted by original lenders and subsequently transferred to Banca Sistema S.p.A., which has transferred them to the Issuer.

An amendment to the notes amortisation mechanism was enacted in July 2018, after DBRS’ initial rating date (14 June 2018).

PORTFOLIO PERFORMANCE
As of April 2019, loans that were two- to three-months in arrears represented 1.0% of the outstanding portfolio balance, the 90+ delinquency ratio was 1.0% and the cumulative default ratio was 2.2%.

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 8.4% and 10.8%, respectively.

CREDIT ENHANCEMENT
As of the June 2019 payment date, credit enhancement to the Class A and Class B1 Notes was 13.9% and 3.0%, down from 15.0% and 4.9%, respectively, at the initial rating date in June 2018. The credit enhancement to the rated notes is provided by the overcollateralisation of the outstanding collateral portfolio. The transaction benefits from an amortising cash reserve, which is available to cover any shortfall of senior fees, expenses and interest on the Class A and Class B1 Notes. As of June 2019 payment date, the cash reserve was at its EUR 5.3 million target amount.

BNP Paribas Securitites Services, Milan branch acts as the account bank for the transaction. Based on the private rating of BNP Paribas Securitites Services, Milan branch, the downgrade provisions outlined in the transaction documents and structural mitigants, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A and Class B1 Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

The transaction´s structure was analysed in Intex DealMaker.

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.

DBRS has reviewed the amendment-related legal documents. Any other legal documents in the transaction remain unchanged since the Initial Rating Date and have not been reviewed.

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 these ratings include servicer reports provided by Banca Sistema S.p.A., payment and investor reports provided by Securitisation Services 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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Ettore Grassini.

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 of loans for the Issuer are 8.4% and 10.8%, respectively. At the A (high) (sf) rating level, the corresponding PD and LGD are 21.6% and 44.4%, respectively. At the A (low) (sf) rating level, the corresponding PD and LGD are 14.3% and 23.8%, 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 remain at A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at A (high) (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 be confirmed at A (high) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

Class B1 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 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 A (low) (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 GmbH are subject to EU and US regulations only.

Lead Analyst: Ettore Grassini, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 14 June 2018

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

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.