DBRS Morningstar Assigns Ratings to Sunrise SPV 92 S.r.l. - Sunrise 2021-1

DBRS Ratings GmbH (DBRS Morningstar) assigned the following ratings to the Class A, Class B, Class C, Class D, and Class E Notes (the Rated Notes and, together with the unrated Class M Notes, the Notes) issued by Sunrise SPV 92 S.r.l. - Sunrise 2021-1 (Sunrise 2021-1 or the Issuer):

-- AA (high) (sf) to the Class A Notes
-- A (high) (sf) to the Class B Notes
-- BBB (high) (sf) to the Class C Notes
-- BBB (sf) to the Class D Notes
-- BB (high) (sf) to the Class E Notes

DBRS Morningstar does not rate the Class M Notes in the transaction.

The rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal on or before the legal final maturity date in July 2046. The ratings on the Class B, Class C, Class D, and Class E Notes address the ultimate payment of interest but the timely payment of scheduled interest when they become the senior-most tranche and the ultimate repayment of principal on or before the legal final maturity date.

DBRS Morningstar based its ratings on the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes.
-- Agos Ducato S.p.A.’s (Agos or the Originator) financial strength and capabilities with respect to originations, underwriting, and servicing.
-- DBRS Morningstar’s operational risk review on Agos, which is deemed 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 Originator’s portfolio.
-- DBRS Morningstar’s sovereign rating on the Republic of Italy at BBB (high) with a Negative trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE
The transaction represents the issuance of the Notes backed by a portfolio of approximately EUR 1.41 billion of fixed-rate receivables related to consumer and auto loans granted by the Originator to private individuals residing in Italy. The Originator will also service the portfolio.

The transaction includes a 18-month revolving period scheduled to end in October 2022. During the revolving period, the Originator may offer additional receivables that the Issuer will purchase, provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers, insolvency of the Originator, or replacement of the servicer.

The transaction allocates collections in separate interest and principal priorities of payments and benefits from an amortising EUR 7.0 million cash reserve and a nonamortising EUR 7.0 million payment interruption risk reserve, both funded with the proceeds of the Class M Notes. Both reserves can be used to cover senior costs and interests on the Rated Notes. The cash reserve can also be used to offset defaulted receivables. Principal funds can be reallocated to cover senior expenses and interests on the Rated Notes.

The transaction further benefits from a nonamortising rata posticipata reserve to supplement interest amounts not made by borrowers during the payment holiday. This reserve will be funded through the transaction interest waterfalls if specific thresholds are breached. This reserve will be released when the threshold breach is cured.

At the end of revolving period, the Notes will be repaid on a fully sequential basis.

Crédit Agricole Corporate and Investment Bank, Milan Branch (CA-CIB Milan) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating on CA-CIB Milan, 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 banks 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.

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 continue to increase in the coming months for many asset-backed security (ABS) transactions, some meaningfully. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 17 March 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-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.

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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

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” (3 September 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 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 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 performance data relating to the receivables provided by Agos directly or through the arrangers, Banca Akros SpA and CA-CIB Milan.

DBRS Morningstar received quarterly static default data from Q1 2004 to Q3 2020, quarterly static recovery data from Q1 2001 to Q3 2020, monthly dynamic arrears and default data from June 2008 to September 2020, and static prepayment rates by annual vintages from 2003 to 2020. DBRS Morningstar also received a set of stratification tables for the loan pool as of 31 January 2021 and its related contractual amortisation profile.

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.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the ratings (the Base Case):

-- Probability of Default (PD) used: expected PD of 7.2%, a 25% and 50% increase on the expected PD.
-- Loss Given Default (LGD) used: expected LGD of 88.1%, a 25% and 50% increase on the expected LGD.

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

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A Notes: AA (low) (sf), A (sf), AA (sf), A (high) (sf), A (low) (sf), AA (sf), A (high) (sf), A (low) (sf)
-- Class B Notes: A (low) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (high) (sf)
-- Class C Notes: BBB (sf), BBB (low) (sf), BBB (high) (sf), BBB (sf), BB (high) (sf), BBB (high) (sf), BBB (sf), BB (high) (sf)
-- Class D Notes: BB (high) (sf), BB (high) (sf), BBB (sf), BB (high) (sf), BB (sf), BBB (sf), BB (high) (sf), BB (sf)
-- Class E Notes: BB (sf), B (high) (sf), BB (high) (sf), BB (low) (sf), B (sf), BB (high) (sf), BB (low) (sf), 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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 29 March 2021

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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating European Structured Finance Transactions Methodology (21 July 2020),
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020),
https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019), https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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