DBRS Morningstar Assigns Ratings to Sunrise SPV 20 S.r.l. - Sunrise 2022-2

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the following classes of notes (collectively, the Rated Notes) issued by Sunrise SPV 20 S.r.l. - Sunrise 2022-2 (the Issuer):

-- Class A Notes at AA (high) (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BBB (low) (sf)

DBRS Morningstar did not rate the Class M Notes also issued in the transaction.

The ratings on the Class A and Class B Notes address the timely payment of scheduled interest and the ultimate repayment of principal on or before the legal final maturity date. The ratings on the 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 most senior tranche, and the ultimate repayment of principal on or before the legal final maturity date.

The Issuer was re-opened after the previous issuance of 2017-2 notes was fully repaid in June 2022 and the 2022-2 transaction continues to be a securitisation of fixed-rate consumer, auto, and other-purpose loans granted by Agos Ducato S.p.A. (the originator and servicer) to private individuals residing in Italy.

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.
-- The originator’s financial strength and capabilities with respect to originations, underwriting, and servicing.
-- DBRS Morningstar’s operational risk review of the originator, 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, currently at BBB (high) with a Stable 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 includes a 12-month revolving period. 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 a non-amortising EUR 9,864,448 payment interruption risk reserve and a cash reserve starting at EUR 5,480,249 at closing (equal to 0.5% initial collateral amount). The cash reserve would be replenished in the transaction interest waterfalls during the revolving period to EUR 27,401,244 (the target amount of 2.5% of non-defaulted loan balances) and will amortise during the redemption period, subject to a floor of EUR 5,480,249 (the initial amount). Both reserves were initially funded with the proceeds of the Class M Notes and can be used to cover senior expenses, swap costs, and interest payments due on the Rated Notes. The cash reserve can also be used to replenish the payment interruption risk reserve and offset defaulted receivables. Principal funds can also be reallocated to cover senior expenses, swap costs, and interest payments due on the Rated Notes if the interest collections and both reserves are not sufficient.

The transaction further benefits from a non-amortising rata posticipata reserve to supplement scheduled interest payments that borrowers do not make during payment holidays. This reserve will be funded through the transaction interest waterfalls if specific thresholds are breached and will be released when the threshold breach is cured.

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

COUNTERPARTIES
Crédit Agricole Corporate and Investment Bank (CA-CIB) Milan Branch is the account bank for the transaction. Based on DBRS Morningstar’s private rating on CA-CIB, 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 ratings assigned to the Rated Notes.

CA-CIB is also the swap counterparty for the transaction, which meets the criteria to act in such capacity based on its private rating. The downgrade provisions outlined in the transaction documents are largely consistent with DBRS Morningstar’s criteria with respect to a swap provider.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
As the originator has a long operating history of consumer and auto loan lending in Italy, DBRS Morningstar considers the performance data to be meaningful for detailed vintage analysis. DBRS Morningstar elected to use a lifetime expected gross default at 6.43%, reflecting the long and improving historical data, as well as the potential portfolio migration during the revolving period.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929.

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” (29 October 2021).

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.

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.

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/401817/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 performance data relating to the receivables that the originator provided directly or through the arrangers, Banca Akros SpA, and CA-CIB.

DBRS Morningstar received quarterly static default and recovery data from Q1 2012 to Q1 2022, monthly dynamic arrears and default data from June 2008 to March 2022, and static prepayment rates by annual vintages from 2003 to 2022. DBRS Morningstar also received a set of stratification tables for the loan pool as of 30 June 2022 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 newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

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:

-- Probability of Default (PD) used: expected PD of 6.43%, a 25% and 50% increase on the expected PD.
-- Loss Given Default (LGD) used: expected LGD of 87.8%, a 25% 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.

DBRS Morningstar concludes that the expected ratings under the five stress scenarios are:
-- Class A Notes: AA (sf), AA (low) (sf), AA (high) (sf), AA (sf), A (high) (sf)
-- Class B Notes: A (high) (sf), A (low) (sf), AA (low) (sf), A (sf), BBB (high) (sf)
-- Class C Notes: BBB (high) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (sf)
-- Class D Notes: BBB (low) (sf), BBB (low) (sf), BBB (sf), BBB (low) (sf), BB (high) (sf)
-- Class E Notes: BBB (low) (sf), BB (sf), BBB (low) (sf), BB (sf), BB) (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: Kevin Chiang, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 13 September 2022

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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 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 (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- 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.
-- 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.
-- 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.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021),
https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022),
https://www.dbrsmorningstar.com/research/396929/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].