Press Release

DBRS Morningstar Confirms Rating on Indigo Lease S.r.l. Following Amendment

Consumer/Commercial Leases

June 11, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (sf) rating of the Class A Notes issued by Indigo Lease S.r.l. (the Issuer).

The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in July 2033.

The rating confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Structural amendments to the transaction executed on 10 June 2021 (the Amendment);
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the April 2021 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 (sf) rating level;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic; and
-- No revolving termination events have occurred.

The transaction is a securitisation of lease receivables related to financial lease contracts to corporations, small businesses, and individuals with registered offices in Italy, granted by Banca IFIS S.p.A. (Banca IFIS) and IFIS Leasing S.p.A. (formerly GE Capital Servizi Finanziari S.p.A.), which was merged into Banca IFIS in May 2018. The portfolio is serviced by Banca IFIS, with Banca Finanziaria Internazionale S.p.A. acting as the backup servicer. The transaction introduced a two-year revolving period during the July 2017 restructuring, which was extended by two years during a restructuring in June 2019 and by two more years following the Amendment. During the revolving period, the Issuer is allowed to replenish the repaid receivables subject to the eligibility requirements specified in the transaction documentation. To date, all requirements have been met.

AMENDMENT
-- Extension of the revolving period by an additional two years to July 2023. DBRS Morningstar has stressed the portfolio in accordance with the eligibility requirements specified in the transaction documentation to assess the worst case that the portfolio characteristics can migrate to;
-- Reduction of the minimum rate of interest payable on fixed-rate lease contracts to 4.0% from 4.1%;
-- Reduction of the minimum margin payable on floating-rate lease contracts to 4.0 from 4.1%;
-- Reset the Performance Trigger Event and the Cash Trapping Condition curves from 1 October 2021;
-- Reset the cumulative net default ratio from 1 October 2021;
-- Lower the margin on the Class A Notes to 0.5% and floor the index linked to the Class A Notes at -0.5%;
-- Increase of the maximum share of borrowers resident in southern Italy to 17.0% from 15.0%; and
-- Allowance for coronavirus-related forbearance measures, up to no later than three years prior to the legal final maturity date in July 2033.

PORTFOLIO PERFORMANCE
As of the April 2021 payment date, leases zero to one month and one to two months in arrears both represented 0.3% of the outstanding portfolio balance while loans two to three months in arrears represented 0.2%. Gross cumulative defaults amounted to 1.8% of the aggregate initial collateral balance, with cumulative recoveries of 76.2% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD and LGD assumptions at 9.4% and 79.8%, respectively, based on the replenishment criteria set forth in the transaction legal documents.

CREDIT ENHANCEMENT
The subordination of the Class B Notes provides credit enhancement to the Class A Notes. As of the April 2021 payment date, credit enhancement to the Class A Notes was 31.0%, unchanged since the DBRS Morningstar initial rating because of the revolving period.

The transaction benefits from a cash reserve, which will only start amortising once half of the Class A Notes have been paid down. The reserve has a target balance equal to 3% of the Class A Notes principal outstanding and would be available to cover senior fees and expenses, and interest payments on the Class A Notes. As of the April 2021 payment date, the reserve was at its target of EUR 5.7 million.

BNP Paribas Securities Services SCA/Milan (BNP Milan) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating on BNP 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 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.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The coronavirus 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 and, where appropriate, adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar applied an additional haircut to its base case recovery rate and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio.

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

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 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 methodologies applicable to the ratings are the “Master European Structured Finance Surveillance Methodology” (8 February 2021) and the Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020).

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.

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 considers potential portfolio migration based on the replenishment criteria set forth in the transaction legal documents.

DBRS Morningstar conducted a review of the amended transaction documents including the Servicing Agreement, Terms & Conditions of the notes, and Master Amendment and Restatement Agreement. The other transaction legal documents have remained unchanged since the most recent rating action and, as such, a review has not been conducted.

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 this rating include portfolio and performance data provided by FISG S.r.l., investor reports provided by Banca Finanziaria Internazionale S.p.A., and loan-level data provided by the European DataWarehouse GmbH. In the context of the Amendment, Banca IFIS provided DBRS Morningstar with monthly historical performance data dating from January 2009 to January 2021 for defaults, recovery, prepayments, and delinquencies.

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 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.

The last rating action on this transaction took place on 3 September 2020, when DBRS Morningstar confirmed its AA (sf) rating on the Class A Notes and removed the rating from Under Review with Negative Implications.

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 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 9.4% and 79.8%, 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 Notes would be expected to decrease to A (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to A (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to BBB (high) (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 (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)

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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 December 2016

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 can be found at: http://www.dbrsmorningstar.com/about/methodologies.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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