DBRS Morningstar Finalises Provisional Ratings on A-BEST 17

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings assigned to the following classes of notes issued by Asset-Backed European Securitisation Transaction Seventeen S.r.l. (the Issuer or A-BEST 17).

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

The transaction represents the issuance of Class A, Class B, Class C, Class D, Class E and Class M Notes (together, the Notes) backed by EUR 900 million pool of receivables related to loans for new and used motor vehicles granted and serviced by FCA Bank S.p.A (FCAB), which is owned by FCA Italy S.p.A. and Crédit Agricole Consumer Finance. The loans were granted to individuals residing in Italy and enterprises with registered office in Italy. DBRS Morningstar does not rate the Class M Notes.

The margins on the final structure’s notes are lower than the ones on the provisional structure (except on the Class A Notes). Also, the final floating and fixed rate paid under the swap agreements have changed to the benefit of the Issuer. These had a positive impact on the final ratings assigned to the Class B, Class C, Class D and Class E Notes, which differ from the respective provisional ratings of AA (sf), A (sf), BB (sf) and B (low) (sf), respectively.

The transaction has a scheduled 14-month revolving period, during which the time Issuer will use principal collections to purchase new receivables that FCAB may offer, subject to certain conditions set out in the transaction documents, including certain concentration limits that stipulate thresholds for used vehicles, VAT borrowers, weighted-average yield and tenor and receivables relating to the financing of insurance premiums. During the revolving period, no principal is repaid on the Notes, but the revolving period may end earlier than scheduled if certain events occur as set out in the transaction documents.

For six payment dates after the revolving period ends, the principal repayment of the Notes will be sequential. On the payment date falling seven months from the end of the revolving period (July 2021), principal available funds will be allocated on a pro rata basis to pay down the Notes until the occurrence of certain events such as breach of performance triggers, insolvency of the originator and termination of the servicer. Under these circumstances, the principal repayment of the Notes becomes sequential and the switch is non-reversible.

The rating of the Class A Notes addresses the timely payment of interest and ultimate repayment of principal by the legal final 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.

The ratings are based on DBRS Morningstar’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 Morningstar-projected expected cumulative 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.
-- FCAB’s (the Seller) capabilities with regard to originations, underwriting and servicing and its financial strength.
-- DBRS Morningstar’s operational risk review of the Seller, which deemed 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 Morningstar.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’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 structure 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 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 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 “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 data sourced from the Seller and provided through the transaction arrangers:

-- Monthly static default data from January 2008 to April 2019.
-- Monthly static recoveries data from January 2008 to April 2019.
-- Monthly dynamic delinquency data from January 2003 to April 2019.

DBRS Morningstar was also provided with detailed stratification tables as at 12 October 2019.

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

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.

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

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

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

-- Expected Default Rate Used: Base case probability of default (PD) of 2.1%, a 25% and 50% increase on the base case PD.
-- Recovery Rate Used: Expected recovery rate of 15.0%, a 25% and 50% decrease in the base case recovery rate.
-- Loss Given Default (LGD) Used: LGD rate of 85.0%, a 25% and 50% increase in the base case LGD.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase in the expected LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AA (high) (sf), AA (sf), AAA (sf), AA (high) (sf), AA (sf), AAA (sf), AA (high) (sf), AA (sf).
-- Class B Notes: AA (sf), A (high) (sf), AA (sf), A (high) (sf), A (sf), AA (sf), A (high) (sf), A (sf).
-- Class C Notes: A (sf), A (low) (sf), A (sf), BBB (high) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (high) (sf).
-- Class D Notes: BB (sf), BB (low) (sf), BB (low) (sf), B (low) (sf), below B (low) (sf), BB (low) (sf), B (low) (sf), below B (low) (sf).
-- Class E Notes: B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (low) (sf), below B (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: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 October 2019

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.

-- 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 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].