DBRS Morningstar Takes Rating Actions on Sunrise S.r.l. - Series 2016-2

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Sunrise S.r.l. - Series 2016-2 (the Issuer):

-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)
-- Class M Notes upgraded to AAA (sf) from AA (sf)

The ratings on the notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in June 2041.

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;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) rating level.

The Issuer is a securitisation of unsecured Italian consumer loan receivables originated by Agos Ducato S.p.A. (Agos). The portfolio consists primarily of loans granted for the purchase of vehicles and personal loans. It also contains flexible loans that permit the borrower to skip one monthly instalment per year (up to a maximum of five times during the life of the loan). The transaction closed in November 2016 and had an 18-month revolving period that ended in June 2018.

PORTFOLIO PERFORMANCE
As of the October 2019 payment date, loans one month, two months, and three months in arrears represented 1.8%, 0.9% and 0.5% of the outstanding portfolio balance, respectively, while loans more than three months in arrears amounted to 1.3%. Gross cumulative defaults amounted to 1.8% of the aggregate initial portfolio balance, with cumulative recoveries of 5.8% to date.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 7.5% and 87.4%, respectively.

CREDIT ENHANCEMENT
Credit enhancement is provided to the rated notes by the subordination of the junior obligations and the cash reserve. As of the October 2019 payment date, credit enhancement to the Class A1 and Class A2 notes increased to 86.1% from 55.4% at the time of the previous annual review while credit enhancement to the Class M Notes increased to 52.3% from 33.9% at the time of the previous annual review.

The transaction benefits from credit and liquidity support in the form of two reserves. The amortising cash reserve account is available to cover senior expenses and interest payments on the rated notes as well as to offset the principal losses of defaulted receivables. As of the October 2019 payment date, the reserve was funded to EUR 19.5 million, equal to its target of 3% of the outstanding portfolio balance. A non-amortising payment interruption risk reserve account provides additional liquidity support and is available to cover senior expenses and interest payments on the rated notes and is currently funded to its target balance of EUR 6.5 million. Additionally, an amortising commingling reserve is currently funded to EUR 11.4 million and will become part of the interest available funds in the event of servicer insolvency.

The structure also includes a Rata Posticipata cash reserve, which shall mitigate the liquidity risk arising from the flexible loans in the transaction. This reserve is 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% of the outstanding balance of all flexible loans. As of the October 2019 payment date, this condition had 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 ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Crédit Agricole Corporate and Investment Bank S.A. (CACIB) acts as the swap counterparty for the transaction. DBRS Morningstar's private rating of CACIB is 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 the “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.

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, servicer reports provided by Agos 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.

The last rating action on this transaction took place on 27 November 2018, when DBRS Morningstar confirmed the ratings on the Class A1 and A2 Notes at AAA (sf) and confirmed the ratings on the Class M Notes at AA (sf).

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (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 7.5% 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 A1 Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A1 Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A1 Notes would be expected to remain at AAA (sf).

Class A1 and Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class M Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (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: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 10 November 2016

DBRS Ratings GmbH
Neue Mainzer Straße 75
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
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions

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].