DBRS Morningstar Confirms Rating on Marzio Finance S.r.l. - Series 5-2019

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (low) (sf) rating on the Class A Notes issued by Marzio Finance S.r.l. – Series 5-2019 (the Issuer).

The rating addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in January 2044.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the February 2020 payment date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AA (low) (sf) rating level.

The Series 5-2019 notes are a part of Marzio Finance S.r.l. securitisation programme. The notes are backed by a pool of receivables related to salary and pension assignment loans as well as payment delegation loans granted by Istituto Bancario del Lavoro S.p.A. (IBL) to Italian employees and pensioners. The portfolio is serviced by IBL Servicing S.p.A. (a company fully owned by IBL) with IBL appointed as sub-servicer and Zenith Service S.p.A. as backup servicer.

The Series 5-2019 receivables are segregated from other series’ receivables that may be assigned to back the issuance of further series. The transaction closed in April 2019, when the SPV issued one class of fixed-rate notes and one class of variable-return notes, namely the Class A and Class B Notes.

PORTFOLIO PERFORMANCE

The portfolio is performing within DBRS Morningstar’s initial expectations. As of January 2020, loans that were two to three months in arrears represented 0.3% of the outstanding portfolio balance, while the 90+ delinquency ratio was 0.6%. The gross cumulative default ratio stood at 0.7% of the initial portfolio balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS

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 7.0% and 17.2%, respectively.

CREDIT ENHANCEMENT

Overcollateralisation of the outstanding collateral portfolio provides credit enhancement and includes the additional reserve. As of the February 2020 payment date, credit enhancement to the Class A Notes was 12.4%, up from 10.6% as at the DBRS Morningstar initial rating date in April 2019.

The transaction benefits from two reserves, namely the liquidity reserve and the additional reserve. The liquidity reserve is available to cover any shortfall on senior fees, expenses, and interest on the Class A Notes. It is currently at its target level of EUR 2.6 million and will start amortising when the Class A Notes’ amortisation is greater than 50% of their initial balance. The additional reserve is available to cover any shortfall on senior fees, expenses, and interest on the rated notes, to top-up the liquidity reserve, and to repay principal on the Class A Notes. It is currently at its target level of EUR 3.7 million and it is sized at 1.5% of the outstanding collateral portfolio.

Citibank NA, Milan Branch acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Citibank NA, Milan Branch, 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 rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and COVID-19, please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding COVID-19 and salary-assignment loan securitisations, please see the following DBRS Morningstar commentary: https://www.dbrsmorningstar.com/research/359026.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (13 December 2019).

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 at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include payment, investor, and servicer reports provided by IBL and loan-level data provided by the European DataWarehouse GmbH.

DBRS Morningstar did not rely upon third-party due diligence 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 this rating 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.

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.dbrsmorningstar.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 7.0% and 17.2%, 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 Notes would be expected to fall to A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected 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 (sf).

Class A 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 (high) (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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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 U.S. regulations only.

Lead Analyst: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 5 April 2019

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction are listed below and can be found at: http://www.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (13 December 2019)
https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020)
https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (28 February 2020)
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].