DBRS Morningstar Takes Rating Actions on Two Brignole Transactions Following Amendments

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Brignole CO 2021 S.r.l. (Brignole CO 2021) and Brignole CQ 2022 S.r.l. (Brignole CQ 2022) (together, the Issuers):

Brignole CO 2021:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)
-- Class C Notes confirmed at A (sf)
-- Class D Notes confirmed at BBB (high) (sf)
-- Class E Notes confirmed at B (high) (sf)
-- Class X Notes upgraded to BB (low) (sf) from B (low) (sf)

Brignole CQ 2022:
-- Class A Notes confirmed at AA (low) (sf)
-- Class B Notes confirmed at A (sf)
-- Class C Notes confirmed at A (low) (sf)
-- Class D Notes upgraded to BBB (low) (sf) from BB (low) (sf)
-- Class X Notes upgraded to A (low) (sf) from B (low) (sf)

For Brignole CO 2021, the rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in July 2036. The ratings on the Class B, Class C, Class D, and Class E Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date while junior to other outstanding classes of notes, but the timely payment of interest when they are the senior-most tranche. The rating on the Class X Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

For Brignole CQ 2022, the rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in March 2038. The ratings on the Class B and Class C Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date while junior to other outstanding classes of notes, but the timely payment of interest when they are the senior-most tranche. The ratings on the Class D and Class X Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

The rating actions follow the execution of an amendment effective as of the 28 December 2022 payment date relating to the interest rate hedging structure in the transactions, encompassing the following:
-- Termination of the existing respective interest rate cap agreements in the transactions with Natixis S.A. (Natixis), with a cap termination amount payable by the cap counterparty to the Issuers;
-- Execution of respective interest rate swap agreements with Natixis, with a swap premium amount payable by the Issuers to the swap counterparty;
-- The resulting net swap premium amount (i.e., the difference between the swap premium amount and the cap termination amount) will be paid by the originator, Creditis Servizi Finanziari S.p.A. (Creditis), on the effective date; and
-- Amendments to the relevant transaction documents to reflect the incorporation of these changes.

Under the terms of the new swap agreements, the Issuers will pay a fixed swap rate of 1.5% to the swap counterparty on each payment date and receive an amount equal to the one-month Euribor rate from the swap counterparty, based on a notional amount equal the lower of (1) the outstanding principal balance of the listed notes (excluding the respective Class X Notes) and (2) the outstanding principal balance of the nondefaulted collateral.

Brignole CO 2021 is a securitisation of Italian consumer loan receivables originated and serviced by Creditis, which closed in July 2021 and includes a 18-month revolving period scheduled to end on the January 2023 payment date.

Brignole CQ 2022 is a securitisation of Italian salary- and pension-assignment loans as well as payment delegation loans originated and serviced by Creditis, which closed in March 2022 and included a six-month revolving period that ended on the September 2022 payment date.

PORTFOLIO PERFORMANCE
Brignole CO 2021
As of the November 2022 payment date, loans that were one, two, and three months in arrears represented 0.7%, 0.2%, and 0.2% of the outstanding nondefaulted portfolio balance, respectively, while loans more than three months in arrears represented 0.2%. Gross cumulative defaults amounted to 0.6% of the aggregate initial and subsequent portfolios original balance, with cumulative recoveries of 7.8% to date.

Brignole CQ 2022
As of the November 2022 payment date, loans that were one, two, and three months in arrears represented 22.1%, 2.7%, and 0.4% of the outstanding nondefaulted portfolio balance, respectively, while loans more than three months in arrears represented 0.2%. Gross cumulative defaults amounted to 1.1% of the aggregate initial and subsequent portfolios original balance, with cumulative recoveries of 38.9% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
For Brignole CO 2021, DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and maintained its base case PD and LGD assumptions at 3.3% and 70.0%, respectively.

For Brignole CQ 2022, DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and maintained its base case PD assumption at 8.4% and updated its base case LGD assumptions to 2.9%.

The rating upgrades on the junior notes reflect the end (Brignole CQ 2022) or near end (Brignole CO 2021) of the revolving period in the transactions as well as the benefit from the repayment of the respective Class X Notes to date.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations and the cash reserve provides credit enhancement to the rated notes (except the Class X Notes). As of the November 2022 payment date, credit enhancement to the rated notes in Brignole CO 2021 remained unchanged at 14.0%, 10.3%, 6.0%, 3.5%, and 1.0% for the Class A, Class B, Class C, Class D, and Class E Notes, respectively, since closing because of the revolving period. The credit enhancement to the rated notes in Brignole CQ 2022 increased marginally to 20.0%, 2.6%, 1.1%, and 0.0% from 19.0%, 2.5%, 1.0%, and 0.0% for the Class A, Class B, Class C, and Class D Notes, respectively, at closing as the notes have only begun to amortise recently following the end of the revolving period.

The respective Class X Notes, the proceeds from the subscription of which the Issuers used to fund the cash reserve and the startup expenses at closing, do not benefit from principal collections on the collateral portfolios and are repaid solely using the available excess spread remaining in the interest priority of payments.

The transactions benefit from liquidity support provided by an amortising cash reserve. For Brignole CO 2021, the reserve is available to cover interest payments on the Class A and Class B Notes and to cure the Class A principal deficiency ledger (PDL) balance. The reserve has a target balance equal to 1.0% of the outstanding balance of the Class A to Class E Notes, subject to a floor of EUR 1.36 million. As of the November 2022 payment date, the reserve was at its target balance of EUR 2.73 million. For Brignole CQ 2022, the reserve is available to cover interest payments and to cure PDL balances on the Class A to Class C Notes. The reserve has a target balance equal to 1.0% of the outstanding balance of the Class A to Class C Notes, subject to a floor of EUR 0.25 million. As of the November 2022 payment date, the reserve was at its target balance of EUR 1.55 million.

BNP Paribas, Succursale Italia (BNP Paribas Italy) acts as the account bank for the transactions. Based on DBRS Morningstar's private rating on BNP Paribas Italy, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Natixis acts as the swap counterparty for the transactions. DBRS Morningstar's private rating on Natixis is above the first rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Social (S) and Governance (G) Factors
With respect to Brignole CQ 2022, the high exposure to public-sector employees, pensioners, and civil servants makes the transaction dependent on the creditworthiness of the Italian sovereign. DBRS Morningstar considers some of the key drivers behind the latest rating action on Italy – namely Human Capital and Human Rights (S) and Institutional Strength, Governance & Transparency (G) – to be significant rating factors. According to the International Monetary Fund World Economic Outlook, Italy’s GDP per capita of USD 35,473 in 2021 was low compared with its euro area peers. At the same time, Italy ranked in the 59.6 and 64.9 percentiles for Rule of Law and Government effectiveness, respectively, in 2021 according to the World Bank indicators. DBRS Morningstar took these factors into account in the “Economic Structure and Performance”, “Fiscal Management and Policy”, and “Political Environment” building blocks of its “Global Methodology for Rating Sovereign Governments”.

There were no Environmental 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (17 May 2022).

DBRS Morningstar analysed the transaction structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (19 May 2022).

Other methodologies referenced in these transactions 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 transactions in accordance with the principal methodology.

As part of the amendments effective on 28 December 2022, notably with respect to the termination of the existing cap agreements and the executed swap agreements, DBRS Morningstar reviewed the relevant transaction legal documents. A review of other transaction legal documents was not conducted as the documents 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/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 investor reports provided by BNP Paribas Italy, servicer reports provided by Creditis, and loan-level data provided by the European DataWarehouse GmbH.

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 Brignole CO 2021 took place on 26 July 2022, when DBRS Morningstar confirmed its ratings of AAA (sf), AA (sf), A (sf), BBB (high) (sf), B (high) (sf), and B (low) (sf) on the Class A, Class B, Class C, Class D, Class E, and Class X Notes, respectively. The last rating action on Brignole CQ 2022 took place on 24 March 2022, when DBRS Morningstar finalised its provisional ratings of AA (low) (sf), A (sf), A (low) (sf), BB (low) (sf), and B (low) (sf), on the Class A, Class B, Class C, Class D, and Class X Notes, respectively.

The lead analyst responsibilities for Brignole CQ 2022 have been transferred to Daniel Rakhamimov.

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

Sensitivity Analysis: 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):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pools 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.
-- Brignole CO 2021: the base case PD and LGD of the current pool of loans are 3.3% and 70.0%, respectively.
-- Brignole CQ 2022: the base case PD and LGD of the current pool of loans are 8.4% and 2.9%, 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 Brignole CO 2021 Class A Notes would be expected to fall to AA (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Brignole CO 2021 Class A Notes would be expected to fall to AA (low) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Brignole CO 2021 Class A Notes would be expected to fall to A (high) (sf).

Brignole CO 2021:
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 AA (low) (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 (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD, expected rating of B (sf)
-- 50% increase in PD, expected rating below B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)

Class X Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (sf)
-- 50% increase in LGD, expected rating of B (low) (sf)
-- 25% increase in PD, expected rating of B (sf)
-- 50% increase in PD, expected rating below B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)

Brignole CQ 2022:
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 (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (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 (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (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 (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

Class X Notes Risk Sensitivity: -- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 30 June 2021 (Brignole CO 2021); 11 March 2022 (Brignole CQ 2022)

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (19 May 2022), https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology.
-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-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.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-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 these credits or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].