DBRS Confirms and Upgrades Ratings of the Notes Issued by ICCREA SME CART 2016 S.r.l.

DBRS Ratings GmbH (DBRS) took the following rating actions on the notes issued by ICCREA SME CART 2016 S.r.l. (the Issuer):

-- Class A2 Notes confirmed at AA (low) (sf)
-- Class B Notes upgraded to A (high) (sf) from A (sf).

The rating on the Class A2 Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date. The rating on the Class B Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date, in accordance with the transaction documentation.

The rating actions follow 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 notes to cover the expected losses at their respective rating levels.

ICCREA SME CART 2016 S.r.l. is a securitisation of lease receivables originated and serviced by Iccrea BancaImpresa S.p.A. The lessees are corporations, small businesses and individual enterprises with registered offices in Italy. The pool comprises receivables in the form of real estate, automotives, industrial vehicles or equipment leases. The residual value of the lease contracts has not been securitised; however, each interest instalment includes the interest accrued on the residual value.

The transaction had a two-year revolving period which ended on the December 2018 payment date, when the Class A1 Notes started to amortise. Following their repayment in full on the June 2019 payment date, the Class A2 Notes are currently amortising.

PORTFOLIO PERFORMANCE
As of June 2019, loans that were two to three months in arrears represented 0.2% of the outstanding portfolio balance; this level has been stable since June 2018. As of June 2019, the 90+ delinquency ratio was 0.5%, also stable since last year, and the cumulative default ratio stood at 1.4%, compared with 0.7% in June 2018.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD after sovereign adjustment to 20.7% from 20.1% and its base case LGD assumptions to 83.7% for the Class A2 Notes and 83.6% for the Class B Notes, from 83.9% and 83.7%, respectively, one year ago. The higher PD is because of the current portfolio composition, with an increased proportion of real estate portfolio in comparison with the maximum allowed during the revolving period as per the replenishment criteria.

CREDIT ENHANCEMENT
As of the June 2019 payment date, credit enhancement to the Class A2 and Class B Notes was 62.5% and 56.8%, respectively, compared with 51.1% and 46.3%, respectively, at the June 2018 payment date.

The transaction benefits from a reserve fund currently at its target balance of EUR 11.6 million, equal to 2.0% of the outstanding balance of the rated notes. It is available to cover senior fees, expenses and interest shortfall on the rated notes.

Citibank N.A./Milan Branch acts as the account bank for the transaction. Based on the DBRS private rating of Citibank N.A./Milan Branch, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the rated 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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by Accounting Partners S.r.l., servicer reports provided by Iccrea BancaImpresa 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 4 July 2019, when DBRS discontinued the rating of the Class A1 Notes. Prior to that, on 26 July 2018, DBRS confirmed the ratings of the Class A1, Class A2 and Class B Notes at AAA (sf), AA (low) (sf) and A (sf), respectively.

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.

-- DBRS updated its base case PD after sovereign adjustment and LGD assumptions to 20.7% and 83.7% for the Class A2 Notes and 83.6% for the Class B Notes, 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 A2 Notes would be expected to fall to A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A2 Notes would be expected to fall to A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A2 Notes would be expected to fall to BBB (high) (sf).

Class A2 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 (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (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 (high) (sf)

Class B 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 (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 BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (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: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 10 August 2016

DBRS Ratings GmbH
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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
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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.