DBRS Morningstar Upgrades Ratings on Sunrise SPV Z90 S.r.l. - Sunrise 2020-1 Following Amendment

DBRS Ratings GmbH (DBRS Morningstar) upgraded the ratings on the notes issued by Sunrise SPV Z90 S.r.l. - Sunrise 2020-1 (the Issuer) following an amendment to the transaction (the Amendment) as follows:

-- Class A Notes to AAA (sf) from AA (high) (sf)
-- Class B Notes to AA (low) (sf) from A (high) (sf)

The rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date of 27 October 2045. The rating on the Class B Notes addresses the ultimate payment of interest, but the timely payment of scheduled interest when they are the most senior tranche, and the ultimate repayment of principal by the legal final maturity.

The upgrades follow an entire review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of October 2021 payment date;
-- The Amendment to the transaction executed on 30 November 2021, which primarily includes an extension of the revolving period by 19 months until June 2023 as well as changes to the default and delinquency trigger definitions;
-- Updated base case assumptions, considering the updated quarterly historical performance data that DBRS Morningstar received for the probability of default (PD), loss given default (LGD), and expected loss assumptions considering the worst-case portfolio composition allowed under the eligibility criteria;
-- No revolving termination events;
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels; and
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction is a securitisation of unsecured Italian consumer loan receivables granted to retail clients and originated and serviced by Agos Ducato S.p.A. The initial EUR 1.1 billion portfolio comprised new and used automobile loans, personal loans, furniture loans, and other-purpose loans. The transaction closed on 10 June 2020 and included an initial 18-month revolving period, which was scheduled to end on the November 2021 payment date; however, following the Amendment, the revolving period has been extended until the June 2023 payment date.

AMENDMENTS
-- Revolving period: The amortising date was extended to July 2023 from the initial amortising date in December 2021.
-- Change in definitions for early termination event triggers as follows:

(1) Delinquency definition: The average delinquency ratio for three consecutive calculation dates exceeds the delinquent relevant threshold, compared with at any calculation date; and
(2) Defaults definition: The default ratio exceeds the default relevant threshold for two consecutive calculations dates, compared to on any calculation date.

PORTFOLIO PERFORMANCE
As of the October 2021 payment date, loans that were one to two months and two to three months delinquent represented 0.4% and 0.1% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.3%. Gross cumulative defaults amounted to 0.9% of the aggregate original and subsequent portfolios, 4.0% of which has been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar received updated historical vintage data and updated its base case PD and LGD assumptions to 6.7% and 88.6% from 7.2% and 88.0%, respectively, at the time of the last rating action on the transaction. The analysis continues to be based on the replenishment criteria set forth in the transaction legal documents. The improved PD assumptions as a result of the updated historical vintage data prompted the upgrades on the Class A and Class B Notes.

CREDIT ENHANCEMENT
The subordination of the respective junior notes and the cash reserve provides credit enhancement to the rated notes. As of the October 2021 payment date, credit enhancement to the Class A and Class B Notes was 34.8% and 24.8%, respectively, stable since the last annual review due to inclusion of the revolving period.

The transaction benefits from several funded reserves. The nonamortising payment interruption risk reserve account has a current balance of EUR 5.7 million and is available to cover senior expenses and interest payments on the rated notes, providing liquidity support to the transaction.

Credit support is provided through an amortising cash reserve with a target balance equal to 2.5% of the outstanding performing collateral principal. The cash reserve is currently at its target balance of EUR 28.6 million and can be used to offset the principal losses of defaulted receivables. The transaction structure also provisions for a Rata Posticipata cash reserve, which mitigates the liquidity risk arising from flexible loans. This reserve will be only funded if, for two consecutive payment dates, the outstanding balance of the flexible loans in relation to which the debtors have exercised the contractual right to postpone the payments is higher than 5.0% of the outstanding balance of all flexible loans. As of the October 2021 payment date, this condition had not been met.

Crédit Agricole Corporate & Investment Bank, Milan branch (CACIB Milan) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on CACIB 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 Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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 ABS transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. The DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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 has reviewed the updated documents regarding the Amendment. A review of any other transaction’s legal documents was not conducted as they have remained unchanged since the most recent rating action.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include investor reports provided by CACIB-Milan and loan-level data provided by the European DataWarehouse GmbH. In the context of the Amendment, DBRS Morningstar was also provided with updated historical performance data as follows:
-- Quarterly default vintage analysis from Q1 2004 to Q2 2021;
-- Quarterly recovery vintage analysis from Q1 2001 to Q2 2021;
-- Dynamic monthly prepayment analysis from 2003 to 2021; and
-- Dynamic monthly delinquency data from June 2008 to June 2021.

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 this transaction took place on 31 May 2021, when DBRS Morningstar confirmed the ratings on the Class A and Class B Notes at AA (high) (sf) and A (high) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Preben Cornelius Overas.

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 6.7% and 88.6%, 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 AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to 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 (high) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (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 (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (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 B 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 AA (sf)
-- 50% increase in PD, expected rating of A (high) (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: http://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: Preben Cornelius Overas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 10 June 2020

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.

-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021),
https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (29 October 2021), https://www.dbrsmorningstar.com/research/387042/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (30 July 2021), https://www.dbrsmorningstar.com/research/382486/rating-european-structured-finance-transactions-methodology.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- 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 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].