DBRS Morningstar Confirms Ratings of Asset-Backed European Securitisation Transaction Twelve S.r.l. and Asset-Backed European Securitisation Transaction Fifteen S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on the bonds issued by Asset-Backed European Securitisation Transaction Twelve S.r.l. (A-BEST 12) and Asset-Backed European Securitisation Transaction Fifteen S.r.l. (A-BEST 15) as follows:

A-BEST 12:
-- Class B Notes at AAA (sf)

A-BEST 15:
-- Class A Notes at AAA (sf)
-- Class B Notes at AAA (sf)
-- Class C Notes at AA (sf)
-- Class D Notes at A (high) (sf)
-- Class E Notes at A (low) (sf)
-- Commingling Reserve Facility at BBB (high) (sf)

In both transactions, the ratings on notes and the Commingling Reserve Facility address the timely payment of interest and ultimate payment of principal on or before the legal final maturity dates.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the July 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 notes to cover the expected losses at their respective rating levels.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Both transactions are securitisations of auto loan receivables granted to individuals and companies in Italy for the purchase of either new or used motor vehicles. The receivables were originated by FCA Bank SpA (FCA Bank), a joint venture that is 50.0% owned by Fiat Group and 50.0% owned by Crédit Agricole Consumer Finance. The revolving period ended on the payment date in October 2017 for A-BEST 12 and May 2019 for A-BEST 15 and the transactions have been amortising since. The legal final maturity date is on the payment date in July 2029 for A-BEST 12 and April 2031 for A-BEST 15.

PORTFOLIO PERFORMANCE
Performance trends are consistent across both portfolios in terms of delinquencies, defaults, recoveries, and prepayments and remain with DBRS Morningstar’s expectations.

Delinquencies have been trending upward but remain low. As of the July 2020 payment date, loans that were two to three months in arrears represented 0.2% of the outstanding portfolio balance for both transactions, and the 90+ delinquency ratios were 0.5% and 0.2%, for A-BEST 12 and A-BEST 15, respectively. Under the servicer definition, loans are classified as defaulted once the borrower becomes insolvent, the loans are written-off by the servicer, or when they exceed 240 days in arrears for A-BEST 12 and 210 days in arrears for A-BEST 15. Under this definition, defaults remain low, reaching cumulative amounts of 0.5% of the total receivables purchased since closing for both transactions. Recoveries stood at 42.0% of the cumulative default amount for A-BEST 12 and 14.0% for A-BEST 15. Both portfolios are exposed to commercial borrowers: 9.5% of the outstanding balance for A-BEST 12 and 9.8% for A-BEST 15.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables. For A-BEST 12, DBRS Morningstar has maintained its base case PD assumption at 2.2% and increased its loss given default (LGD) assumption to 87.9% from 87.0% a year ago. For A-BEST 15, DBRS Morningstar has maintained its base case PD assumption at 2.3% and increased its LGD assumption at 87.9% from 87.0% a year ago. The absence of change in the PD reflects a stable composition of the portfolio according to the vehicle condition (new vs. used) and borrower type (private vs. commercial) since a year ago. The increase in the LGD reflects the adjustments due to the coronavirus environment.

CREDIT ENHANCEMENT
For both transactions, the credit enhancement for each class of notes comes from the subordination of its respective junior notes.

As of the July 2020 payment date, the credit enhancement (CE) increased as follows since a year ago:

A-BEST 12:
--CE to the Class B Notes increased to 40.6% from 14.5%.

A-BEST 15:
--CE to the Class A Notes increased to 17.3% from 9.3%
--CE to the Class B Notes increased to 16.4% from 8.8%
--CE to the Class C Notes increased to 8.1% from 4.3%
--CE to the Class D Notes increased to 5.2% from 2.7%
--CE to the Class E Notes increased to 3.3% from 1.7%

Each transaction benefits from a non-amortising cash reserve currently at its target amount, which for A-BEST 12 is EUR 11.2 million, and for A-BEST 15 is EUR 14.0 million. The cash reserves provide liquidity support to the notes and credit support upon the legal final maturity date.

The commingling reserve in each transaction was funded by FCA Bank when the transaction closed. It can only be drawn in the event that the servicer is unable to perform the daily transfer of collections as a result of the insolvency of FCA Bank or if FCA Bank cannot indemnify the transaction for the non-payment of insurance premiums. The rating of the Commingling Reserve Facility is based on the credit strength of FCA Bank, the account banks where the funds are deposited and the Class C Notes, which rank senior to the Commingling Reserve Facility in the priority of payments and the sensitivity to the current coronavirus environment. The rating of the Commingling Reserve Facility assess the likelihood of a facility drawing and the capacity of the transaction to make timely interest payments on the facility.

DBRS Morningstar factored the loss of insurance premium payments not covered by the Commingling Reserve due to borrower prepayments into its analysis.

Elavon Financial Services DAC (Elavon) acts as the account bank in A-BEST 12 and BNP Paribas Securities Services, Milan branch (BNP Milan) acts as the account bank in A-BEST 15. Based on the DBRS Morningstar private ratings of Elavon and BNP Milan, the downgrade provisions outlined in both transaction documents, and other mitigating factors inherent in each 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 B Notes for A-BEST 12 and to the Class A Notes for A-BEST 15, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

FCA Bank acts as the swap counterparty for both transactions. UniCredit and Crédit Agricole Corporate & Investment Bank S.A. (CA CIB) are the joint standby swap counterparties in A-BEST 12. CA CIB is the sole standby swap counterparty in A-BEST 15. The DBRS Morningstar private rating of FCA Bank is below the first rating threshold given the rating assigned to the senior notes as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology. The swap counterparty risk is mitigated through the existence of the standby swap counterparties.

DBRS Morningstar analysed the transaction structures 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 both transactions, DBRS Morningstar increased applied an additional haircut to its base case recovery rate, which translated into an increase in its base case LGD.

The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings.
DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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 the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions are listed at the end of this press release. These may be found at: https://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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by Citibank N.A., London branch for A-BEST 12 and by CA-CIB for A-BEST 15, and loan-level data provided by the European DataWarehouse GmbH for both transactions.

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

At the time of the initial ratings, 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 both transactions took place on 1 August 2019, when DBRS Morningstar confirmed the rating on the Class A Notes at AAA (sf) and upgraded the rating on the Class B Notes to AAA (sf) for A-BEST 12 and upgraded the ratings of the Class A, Class B, Class C, Class D, Class E Notes, and the Commingling Reserve Facility to AAA (sf), AAA (sf), AA (sf), A (high) (sf), A (low) (sf), and BBB (high) (sf), respectively, for A-BEST 15.

On 22 July 2020, the Class A Notes AAA (sf) rating of A-BEST 12 was discontinued following the payment in full of the Class A Notes.

The lead analyst responsibilities for these transactions have been transferred to Alfonso Candelas.

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 are:
--For A-BEST 12, 2.2% and 87.9%, respectively.
--For A-BEST 15, 2.3% and 87.9%, 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, in the case of A-BEST 12, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (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 remain at AAA (sf).

For example, in the case of A-BEST 15, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (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 remain at AAA (sf).

A-BEST 12:
Class B 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)

A-BEST 15:
Class A 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 B 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)

Class C 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 (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

Class D 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 (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 A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Class E 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 BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

The rating sensitivity of the Commingling Reserve Facility will mainly be determined by the rating movements on the Class C Notes or DBRS Morningstar’s private rating on FCA Bank.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
https://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: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date:
A-BEST 12: 10 August 2015
A-BEST 15: 16 May 2017

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 these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (22 April 2020) https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- 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 (21 July 2020) https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019) https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
-- Legal Criteria for European Structured Finance Transactions (11 September 2019) https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019) https://www.dbrsmorningstar.com/research/350907/derivative-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

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

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