DBRS Morningstar Takes Rating Actions on Florence SPV S.r.l. Following Amendment

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Florence SPV S.r.l. (the Issuer):

-- Confirmed the Class A Notes at AA (sf)
-- Upgraded the Class B Notes to A (high) (sf) from A (sf)

The rating actions follow a full review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the January 2020 payment date;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions for the remaining collateral pool, considering the updated quarterly vintage performance data received by DBRS Morningstar in the context of some amendments to the transaction (the Amendment);
-- No revolving termination events have occurred;
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in October 2040.

Florence SPV S.r.l. is a revolving securitisation of personal and vehicle loans originated and serviced by Findomestic Banca S.p.A. (Findomestic) to individuals resident in Italy. The transaction closed in May 2013 and was restructured in December 2015, when an additional pool was transferred to the Issuer and the notes balance was increased (the Increase Date).

REVOLVING PERIOD

The transaction had an original 26-month revolving period, which was extended in March 2018 for a further 24 months, until January 2020 (inclusive), with the amortisation of the notes supposed to start on the payment date falling in February 2020. Following an amendment executed on 6 February 2020, the amortisation of the notes was further postponed to the payment date falling in May 2020. Following the Amendment, the transaction’s revolving period was extended for 24 additional months. Therefore, the amortisation of the notes is now expected to start on the payment date falling in March 2022. There are eligibility criteria, concentration limits, and performance triggers in place to mitigate any potential portfolio deterioration during the revolving period; all have been met to date.

AMENDMENTS

The following amendments were executed and have been effective from 27 February 2020:
-- An extension of the revolving period for additional 24 months until the March 2022 payment date
(exclusive);
-- In relation to the outstanding balance of any relevant subsequent portfolio, an increase in the maximum percentage of receivables arising out of loans originated through brokers to 22.5% from 13.5%;
-- In relation to the outstanding balance of any relevant subsequent portfolio, an increase in the maximum percentage of receivables arising out of loans disbursed to debtors resident in the regions of Campania, Apulia, Calabria, Basilicata, Sicily and Sardinia, all in Southern Italy, to 75% from 60%.

PORTFOLIO PERFORMANCE

The portfolio is performing within DBRS Morningstar’s initial expectations. As of December 2019, loans that were two to three months in arrears represented 0.4% of the outstanding portfolio balance, while the 90+ delinquency ratio was 0.6%. The gross cumulative default ratio stood at 5.4% of the initial portfolio balance (including subsequent portfolios purchased so far). As of the January 2020 payment date, the concentration limits and performance triggers in place have been satisfied.

PORTFOLIO ASSUMPTIONS

In the context of the aforementioned Amendment, DBRS Morningstar received updated vintage performance data, split by product type. DBRS Morningstar recalibrated its base case assumptions on gross default and recovery rate for each product type and noted an overall improvement in the performance. The updated base case PD and LGD assumptions, based on the worst-case portfolio composition, are 11.7% and 77.8%, respectively.

CREDIT ENHANCEMENT

Overcollateralisation of the outstanding collateral portfolio and the debt service reserve provide credit enhancement to the notes. As of the January 2020 payment date, credit enhancement to the Class A and Class B Notes was 36.0% and 24.0%, respectively, stable from January 2019.

The transaction structure benefits from two amortising reserves. The liquidty reserve is available to cover shortfalls on senior fees, expenses, and interest payments on the Class A and Class B Notes. The reserve is currently at its target level of EUR 16.1 million, which accounts for 0.5% of the rated notes outstanding balance, and will start amortising after the revolving period.

The debt service reserve is available to cover shortfalls on senior fees, expenses, interest payments on the Class A and Class B Notes and the purchase price of any additional portfolios during the revolving period or the notes principal redemption amount during the amortisation period. The reserve is currently at its target level of EUR 67.5 million and will start amortising after the revolving period.

BNP Paribas Securities Services, Milan Branch acts as the account bank for the transaction. Based on the private rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants, 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.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:

All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings are the “Master European Structured Finance Surveillance Methodology” and the “Rating European Consumer and Commercial Asset-Backed Securitisations”.

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

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.

DBRS Morningstar conducted a review of the amended transaction documents, including the Master Receivables Purchase Agreement. A review of any other transaction’s legal documents was not conducted as the these 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 payment and investor reports provided by Securitisation Services S.p.A., servicer reports provided by Findomestic and loan-level data provided by BNP Paribas CIB. In the context of the Amendment, DBRS Morningstar was also provided with Findomestic updated historical gross loss and recovery data by quarterly vintages starting from 2009 as well as with an updated portfolio amortisation schedule as at 31 December 2019.

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

In the context of the Amendment, 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 28 March 2019, when DBRS Morningstar confirmed the Class A and the Class B Notes at AA (sf) and A (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.

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 receivables are 11.7% and 77.8%, 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. Taking the Class A Notes as an example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to A (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to A (low) (sf).

Class A Notes 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 (high) (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 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 (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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 3 June 2013

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
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations

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].