Press Release

DBRS Finalises Provisional Ratings of Brignole CO 2019-1 S.r.l.

Consumer Loans & Credit Cards
August 01, 2019

DBRS Ratings Limited (DBRS) finalised its provisional ratings of the following classes of notes issued by Brignole CO 2019-1 S.r.l. (the issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at B (high) (sf)
-- Class X Notes at B (low) (sf)

Provisional ratings were initially assigned by DBRS on 12 July 2019.

The transaction represents the issuance of Class A, Class B, Class C, Class D, Class E, Class X (the rated notes), Class F and Class R Notes (together, the notes) backed by a pool of approximately EUR 323 million of fixed-rate receivables related to unsecured Italian consumer loans granted by Creditis Servizi Finanziari S.p.A. (the originator and servicer) to individuals residing in Italy. The transaction envisages a one-year revolving period during which time the issuer will purchase new receivables that the originator may offer provided that certain conditions set out in the transaction documents are satisfied. DBRS does not rate the Class F or the Class R Notes. The transaction benefits from a EUR 6.4 million cash reserve funded with part of the proceeds of subscription of the Class X Notes that can be used to cover shortfalls in senior expenses, interest under the Class A, Class B, Class C, Class D and Class E Notes and to offset defaults thus providing credit enhancement. The rated notes pay interest indexed to one-month Euribor plus a margin and the interest rate risk arising from the mismatch between the floating-rate notes and the fixed-rate collateral is hedged through an interest rate cap with an eligible counterparty. The Class X Notes are not collateralised by receivables and entirely rely on excess spread to pay interest and repay principal. Their amortisation with interest funds is expected to be completed in 18 identical instalments of EUR 600,000, starting during the revolving period.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal maturity date. The ratings on the Class B, Class C, Class D and Class E Notes address the ultimate payment of interest and ultimate repayment of principal by the legal maturity date while junior to other outstanding classes of notes but the timely payment of interest when they are the senior-most tranche, in accordance with issuer’s default definition (liquidation) provided in the transaction documents. The rating on the Class X Notes addresses the ultimate payment of interest and ultimate repayment of principal by the legal maturity date.

The ratings are based on DBRS’s review of the following analytical considerations:

-- The transaction capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- The seller, originator and servicer’s capabilities with respect to originations, underwriting, servicing and financial strength.
-- The appointment upon closing of a backup servicer.
-- DBRS conducted an operational risk review at Creditis Servizi Finanziari S.p.A.’s premises and deems it to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral and historical and projected performance of the seller’s portfolio.
-- The sovereign rating of the Republic of Italy, currently rated BBB (high) with a Stable trend by DBRS.
-- The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, the presence of legal opinions that address the true sale of the assets to the issuer and non-consolidation of the issuer with the seller.

The transaction was analysed in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 the ratings include data sourced from Creditis Servizi Finanziari SpA and provided through the transaction arranger, Citigroup Global Markets Limited:
-- Monthly dynamic delinquency data from May 2008 to May 2019.
-- Monthly dynamic prepayment data from May 2008 to April 2019.
-- Quarterly static default data from Q2 2008 to Q1 2019.
-- Quarterly static recovery data from Q1 2009 to Q1 2019.

DBRS was also provided with detailed stratification tables as at 3 July 2019.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

DBRS was supplied with one or more 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.

These ratings concerns a newly issued financial instrument. These are the first DBRS ratings on this financial instrument.

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

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):
-- Expected Default Rate Used: base probability of default (PD) of 3.3% (excluding sovereign stress), a 25% and 50% increase on the applicable PD.
-- Recovery Rate Used: expected recovery rate of 30%.
-- Loss Given Default (LGD) Used: expected LGD of 70%, a 25% and 50% increase in the applicable LGD.

DBRS concludes that:
-- A hypothetical increase of the base case PD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf), Class B Notes to A (high) (sf), Class C Notes to BBB (high) (sf), Class D Notes to BBB (low) (sf), Class E Notes to B (low) and the Class X Notes to C (sf).
-- A hypothetical increase of the base case PD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf), Class B Notes to A (sf), Class C Notes to BBB (sf), Class D Notes to BB (high) (sf), Class E Notes to C (sf) and the Class X Notes to C (sf).
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would not lead to a downgrade of the Class A Notes and would lead to a downgrade of the Class B Notes to AA (low) (sf), Class C Notes to BBB (high) (sf), Class D Notes to BBB (low) (sf), Class E Notes to B (low) (sf) and the Class X Notes to C (sf).
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would not lead to a downgrade of the Class A Notes and would lead to a downgrade of the Class B Notes to AA (low) (sf), Class C Notes to BBB (high) (sf), Class D Notes to BB (high) (sf), Class E Notes to C (sf) and the Class X Notes to C (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by
25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf), Class B Notes to A (sf), Class C Notes to BBB (sf), Class D Notes to BB (sf), Class E Notes to C (sf) and the Class X Notes to C (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by
25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf), Class B
Notes to BBB (high) (sf), Class C Notes to BB (high) (sf), Class D Notes B (high) (sf), Class E Notes C (sf), Class X Notes C (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by
50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf), Class B Notes to A (sf), Class C Notes to BBB (low) (sf), Class D Notes BB (sf), Class E Notes C (sf), Class X Notes C (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by
50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf), Class B Notes to BBB (high) (sf), Class C Notes to BB (high) (sf), Class D Notes B (sf), Class E Notes C (sf), Class X Notes C (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: Paolo Conti, Senior Vice President, European ABS
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 12 July 2019

DBRS Ratings Limited
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London EC3M 3BY United Kingdom
Registered and incorporated under the laws of England and Wales: Company No. 7139960

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

-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- 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 [email protected].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.