DBRS Morningstar Takes Rating Actions on Asset-Backed European Securitisation Transaction Fourteen Following Amendment

DBRS Ratings GmbH (DBRS Morningstar) took rating actions on the notes issued by Asset-Backed European Securitisation Transaction Fourteen S.r.l. (A-BEST 14) as follows:

-- Class A Asset-Backed Fixed Rate Notes confirmed at AA (sf)
-- Class B Asset-Backed Fixed Rate Notes confirmed at A (sf)
-- Class C Asset-Backed Fixed Rate Notes confirmed at BBB (high) (sf)
-- Class D Asset-Backed Fixed Rate Notes confirmed at BB (high) (sf)
-- Class E Asset-Backed Fixed Rate Notes confirmed at BB (low) (sf)
-- Commingling Reserve Facility discontinued and withdrawn.

The ratings address the timely payment of interest and ultimate payment of principal on or before the final legal maturity in April 2030.

These rating actions follow certain amendments to the transaction executed and effective from 26 June 2020 (the amendments).

The rating actions follow an annual review of the transaction and the discontinuation of the rating assigned to the Commingling Reserve Facility was requested by the issuer following the full repayment of the facility in the context of the amendments.

The ratings are based on the following analytical considerations:

-- The transaction capital structure, following the amendments executed on 26 June 2020, including form and sufficiency of available credit enhancement.
-- DBRS Morningstar’s operational risk review on FCA Bank S.p.A. (FCAB), which it deemed to be an acceptable in its roles.
-- DBRS Morningstar opinion of FCAB as originator and servicer and its capabilities with respect to originations, underwriting, servicing, and financial strength.
-- Portfolio performance, in terms of delinquencies, defaults, and losses.
-- DBRS Morningstar’s sovereign rating of Italy at BBB (high) with a Negative trend.
-- 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.
-- No early termination event occurred.
-- 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 nonconsolidation of the Issuer with the seller.

A-BEST 14, which closed in May 2016, is a securitisation of a portfolio of Italian auto loans originated and serviced by FCAB, a joint venture that is 50% owned by FCA Group (Fiat-Chrysler Automobiles) and 50% owned by Crédit Agricole Consumer Finance S.A.

AMENDMENT
As mentioned, the rating actions follow amendments to the structure executed and effective from 26 June 2020. The amendments include:
-- A six-month extension of the revolving period, scheduled to end in December 2020;
-- Increase of the concentration limit of used vehicle loans to 20% from 16%;
-- Removal of the commingling reserve and the related facility loan granted by FCAB on the July 2020 payment date.
-- Increase the repurchase limit, specified in Clause 16(a) (i) of the Master Receivables Purchase Agreement, to 5% from 3% and in Clause 16(a) (ii) to 7% from 5%.

PORTFOLIO PERFORMANCE
As of the June 2020 payment date, loans that were 30 to 60 days delinquent and 60 to 90 days delinquent represented 0.3% and 0.1% of the portfolio net discounted balance, respectively. The cumulative gross default ratio was 0.5% of the aggregate original portfolios, with cumulative principal recoveries of 23.3% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar received updated vintage performance data, split according to 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 2.9% and 85.8%, respectively.

CREDIT ENHANCEMENT
Subordination is provided by the respective junior tranches. As of the June 2020 payment date, credit enhancement to the Class A, Class B, Class C, Class D, and Class E Notes remained at 10.0%, 7.0%, 5.0%, 2.4%, and 1.3%, given that the transaction is still in its revolving period.

The transaction benefits from a nonamortising cash reserve currently at its target of EUR 23.1 million. The cash reserve provides liquidity support to the notes and credit support upon the legal final maturity date.

Elavon Financial Services DAC acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon Financial Services DAC, 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 Asset-Backed Fixed Rate Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction DBRS Morningstar moderately increased the expected loss-given-default rate for the receivables.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.

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 Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (22 April 2020).

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.

DBRS Morningstar has conducted a review of the transaction legal documents provided in the context of the aforementioned amendment. The other transaction legal documents have remained unchanged since the most recent rating action and as such, a review has not been conducted.

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 these ratings include investor reports and issuer data provided by Elavon and CA CIB and loan-level data from European DataWarehouse GmbH. In the context of the Amendment, the seller provided DBRS Morningstar with historical performance data dating from January 2008 to April 2020 for defaults, recovery, and prepayments.

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 1 August 2019, when DBRS Morningstar confirmed the ratings of the Class A Asset-Backed Fixed Rate Notes, Class B Asset-Backed Fixed Rate Notes, Class C Asset-Backed Fixed Rate Notes, Class D Asset-Backed Fixed Rate Notes, Class E Asset-Backed Fixed Rate Notes, and Commingling Reserve Facility.

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.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 2.9% and 85.8%, 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. For example, if the LGD increases by 50%, the rating of the Class A Asset-Backed Fixed Rate Notes would be expected to fall to AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Asset-Backed Fixed Rate Notes would be expected to fall to A (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Asset-Backed Fixed Rate Notes would be expected to fall to BBB (high) (sf).

Class A Asset-Backed Fixed Rate Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (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 BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

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

Class C Asset-Backed Fixed Rate Notes 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 (high) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

Class D Asset-Backed Fixed Rate Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (sf)

Class E Asset-Backed Fixed Rate Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD, expected rating of B (sf)
-- 50% increase in PD, expected rating below B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (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: Petter Wettestad, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 16 May 2016

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

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.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (13 December 2019),
https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- 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.
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
-- 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].