DBRS Morningstar Confirms Ratings of Sunrise SPV 50 S.r.l. - Sunrise 2018-2

DBRS Ratings GmbH (DBRS Morningstar) confirmed the following ratings on the notes issued by Sunrise SPV 50 S.r.l. - Sunrise 2018-2 (the Issuer):
-- Class A at AA (high) (sf)
-- Class B at A (high) (sf)
-- Class C at BBB (high) (sf)

The rating of the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in December 2043. The ratings on the Class B and Class C notes address the ultimate payment of interest and principal on or before the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of October 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; and
-- No revolving termination events have occurred.

The Issuer is a securitisation of unsecured Italian consumer loan receivables granted to retail clients and originated by Agos Ducato S.p.A. (Agos). The initial EUR 1.1 billion portfolio comprised new and used automobile loans, personal loans, furniture loans and other purpose loans. The transaction closed on 22 November 2018 and has an initial one-year revolving period expected to end on the December 2019 payment date, after which the transaction will begin to amortise. Concentration limits are in place to mitigate against any negative evolution of the portfolio, and performance triggers are included in the revolving period termination events. To date, all triggers are being met.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of the October 2019 payment date, loans that were one- to two-months and two- to three-months delinquent represented 0.3% and 0.2% of the portfolio balance, respectively, while loans more than three-months delinquent represented 0.6%. Gross cumulative defaults amounted to 0.3% of the aggregate original and subsequent portfolios. DBRS Morningstar updated its base case PD and LGD assumptions to 7.2% and 87.4%, respectively.

CREDIT ENHANCEMENT
Credit enhancement for the rated notes is provided by the subordination of the respective junior obligations, as well as amounts standing on the cash reserve. As of the October 2019 payment date, credit enhancement to the Class A notes was 33.8%, credit enhancement to the Class B notes was 23.4% and credit enhancement to Class C notes was 14.1%, up from 31.8%, 21.4% and 12.2% at closing, respectively.

The transaction benefits from several funded reserves. The non-amortising Payment Interruption Risk reserve account has a current balance of EUR 5.5 million and is available to cover senior expenses and interest payments on the rated notes, providing liquidity support to the transaction. Credit support is provided through an amortising cash reserve with a target balance equal to 3.0% of the outstanding performing collateral principal. The cash reserve is currently at its target balance of EUR 27.4 million and can be used to offset the principal losses of defaulted receivables. The transaction structure also provisions for a Rata Posticipata cash reserve, which mitigates the liquidity risk arising from flexible loans. This reserve will be 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 5.0% of the outstanding balance of all flexible loans. As of the October 2019 payment date, this condition has not been breached.

Crédit Agricole Corporate and Investment Bank S.A., Milan branch (CACIB-Milan) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of CACIB-Milan, the downgrade provisions outlined in the transaction documents and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Credit Agricole Corporate and Investment Bank S.A. (CACIB) and Banco Santander S.A. (Santander) act as the swap counterparties for the transaction. DBRS Morningstar’s private rating of CACIB and Santander reference rating of A (high), which is one notch below its Critical Obligations Rating (COR) of AA (low), are both above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

The transaction 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 Morningstar 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 continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by CACIB-Milan, and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

This is the first rating action on this transaction since the initial rating date on 22 November 2018.

The lead analyst responsibilities for this transaction have been transferred to Petter Wettestad.

Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- DBRS Morningstar 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 7.2% and 87.4%, 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 would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A 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 A would be expected to fall to A (low) (sf).

Class A 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)

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

Class C Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

For further information on DBRS Morningstar 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: Petter Wettestad, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 22 November 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
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses 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

A description of how DBRS Morningstar 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].