Press Release

DBRS Morningstar Assigns Ratings to Lanterna Finance S.r.l. (2021)

Structured Credit
December 22, 2021

DBRS Ratings GmbH (DBRS Morningstar) assigned an A (high) (sf) rating to the EUR 425,000,000 Class A1 Asset Backed Notes due January 2061 (the Class A1 Notes) and an A (low) (sf) rating to the EUR 75,000,000 Class A2 Asset Backed Notes due January 2061 issued by Lanterna Finance S.r.l. (2021) (the Issuer or Lanterna Finance 2021).

The ratings on the Class A1 and Class A2 Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in January 2061. The Issuer also issued EUR 187,000,000 Class B Asset Backed Notes due January 2061 (together with the Class A1 and Class A2 Notes, the Notes), which were not rated by DBRS Morningstar.

Lanterna Finance 2021 is a cash flow securitisation collateralised by a portfolio of performing mortgage and nonmortgage loans to Italian micro companies and small and medium-size enterprises (SMEs). The loans were granted by Banca Carige S.p.A. (Carige) and Banca del Monte di Lucca S.p.A. (BML, and together with Carige, the Originators), the latter being part of the Carige group since 2000.

The initial valuation date when the economic effect of the portfolio transfer started was 27 November 2021. As of the initial valuation date, the portfolio consisted of 7,042 loans extended to 6,249 borrowers, with an aggregate par balance of EUR 683.09 million, of which EUR 0.39 million of loans were in arrears for less than 31 days. The initial portfolio consists of senior unsecured loans representing 80.0% of the outstanding portfolio balance and mortgage-backed loans representing the remaining 20.0%.

In a pre-enforcement scenario, the structure allows for interest on the Class A1 Notes to be paid in priority to the interest on the Class A2 Notes. Principal on the Class A1 Notes is subordinated to the payment of interest on the Class A2 Notes, but in priority to the payment of principal on the Class A2 Notes. Considering that the non-timely payment of interest on both the Class A1 and Class A2 Notes is defined as an event of default in the transaction documentation, the non-timely payment of interest on the Class A2 Notes might drive the event of default of the Class A1 Notes. DBRS Morningstar has considered such feature into its analysis. In a post-enforcement scenario, the Class A1 and Class A2 Notes are pari passu and pro rata with respect to both principal and interest payments.

The transaction includes a cash reserve, which will be available to cover expenses, senior fees, and interest on the Class A1 and Class A2 Notes. The target cash reserve is equal to 1.5% of the principal outstanding of the Class A1 and Class A2 Notes (without any floor). The Class A1 and Class A2 Notes benefit from a total credit enhancement of 38.9% and 27.9%, respectively, which is provided by the overcollateralisation of the portfolio and the cash reserve.

The initial portfolio exhibits a higher geographic concentration in the Italian region of Liguria, which accounts for 31.8% of the portfolio outstanding balance. The geographic concentration reflects the bank’s significant presence in the region. The portfolio is further concentrated in the regions of Tuscany and Lombardy, accounting for 17.1% and 12.7%, respectively.

The initial portfolio exhibits a relatively low sector concentration. The top three sector exposures, according to DBRS Morningstar’s industry classifications, are building & development, industrial equipment, and retailers (except food & drug), which represent 18.7%, 11.0%, and 8.8% of the outstanding portfolio balance, respectively. The initial portfolio has a relatively low borrower concentration, as the largest and top five and 10 largest borrower groups account for 0.7%, 3.1%, and 5.1% of the outstanding portfolio balance, respectively.

66.6% of the initial portfolio benefits from the Fondo Centrale di Garanzia (FCG) Guarantee (83.0% and 0.7% of the unsecured and secured portfolio, respectively). The guarantee covers on average 84.8% of the guaranteed loans’ outstanding notional. The unsecured recovery rates have been adjusted to recognise the benefit of the guarantee. In its credit analysis, DBRS Morningstar did not give full credit to the guarantee for rating scenarios above BBB (high) (sf), in line with the current long-term issuer rating of the Italian sovereign. Moreover, DBRS Morningstar assumed that in all rating scenarios a portion of the guarantee would not be honoured to account for possible rescissions of the guarantee due to noncompliance with the terms.

The transaction is exposed to the risk of set-off as it represents 30.3% of the initial portfolio balance (reduced to 15.9% if all borrowers opt to claim the first EUR 100,000 covered by the deposit guarantee scheme). DBRS Morningstar assumed a set-off risk loss of EUR 54.34 million in its analysis which was deducted from the portfolio balance.

Carige and BML act as the master servicer and additional servicer, respectively, and Zenith Service S.p.A. acts as the backup servicer for this transaction. If one of the servicer’s appointments is terminated, the Issuer will appoint a substitute of the servicer within 15 days.

DBRS Morningstar determined its ratings based on the principal methodology and the following analytical considerations:
-- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. DBRS Morningstar assumed an annualized PD of 6.7% and 6.9% for mortgage and nonmortgage loans, respectively. Additional adjustment were applied in the context of the current Coronavirus Disease (COVID-19) pandemic.
--The assumed weighted-average life (WAL) of the portfolio was 2.8 years.
-- The PDs and WAL were used in the DBRS Morningstar Diversity Model to generate the hurdle rate for the assigned rating.
-- The recovery rate was determined by considering the market value declines for Europe, the security level, and collateral type. The final recovery rate was determined by giving partial credit to the FCG Guarantee. Recovery rates of 76.7% and 43.7% were used for the secured and unsecured loans, respectively, at the A (high) (sf) rating level. Recovery rates of 77.1% and 45.3% were used for the secured and unsecured loans, respectively, at the A (low) (sf) rating level. The weighted-average recovery rate assumed for the portfolio is 50.3% at the A (high) (sf) rating level and 51.6% at the A (low) (sf) rating level.
-- The breakeven rates for the interest rate stresses and default timings were determined using DBRS Morningstar’s cash flow tool.

DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.

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. For this transaction, DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: and

For more information on DBRS Morningstar considerations for European Structured Credit transactions and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar commentary:

DBRS Morningstar considered that the presence of loans backed by the FCG Guarantee was a social factor (Social Impact of Product & Services) as outlined within the DBRS Morningstar Criteria – “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings”. DBRS Morningstar assumed reduced loss severity for the loans which are backed by FCG Guarantee. This is credit positive and impacts the rating, given the reduced loss expectations for guaranteed loans.

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

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs” (28 June 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at:

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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:

The sources of data and information used for this rating include performance data relating to the receivables provided by the Originators directly or through the arranger, Intesa Sanpaolo S.p.A.

DBRS Morningstar received the following data information, split by mortgage and unsecured loans:
-- Static annual default and recovery data from 2007 to 2021;
-- Dynamic semiannual delinquency data from Q2 2008 to Q2 2021;
-- Dynamic semiannual default and prepayment data from Q2 2008 to Q2 2021.

DBRS Morningstar also received data information on the FCG Guarantee enforcement from 2015 to 2021.

In addition, DBRS Morningstar received loan-level characteristics, contractual amortisation profile and set-off exposure as at 27 November 2021.

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

Sensitivity Analysis: 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):
-- PD Rates Used: Base case PD of 6.7% for mortgage loans and 6.9% for non-mortgage loans, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 50.3% and 51.6% at the A (high) (sf) and A (low) (sf) stress level, a 10% and 20% decrease in the base case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage:

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

Lead Analyst: Ilaria Maschietto, Vice President
Rating Committee Chair: Carlos Silva, Senior Vice President
Initial Rating Date: 22 December 2021

DBRS Ratings GmbH
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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:

-- Rating CLOs Backed by Loans to European SMEs (28 June 2021) and DBRS Morningstar SME Diversity Model v2.5.0.1,
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
-- Cash Flow Assumptions for Corporate Credit Securitizations (8 February 2021),
-- Rating CLOs and CDOs of Large Corporate Credit (8 February 2021),
-- European RMBS Insight Methodology (3 June 2021),
-- European RMBS Insight: Italian Addendum (10 December 2021),
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021),
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at:

For more information on this credit or on this industry, visit or contact us at