Press Release

DBRS Morningstar Assigns Provisional Credit Ratings to Auto ABS Italian Stella Loans 2023-1 S.r.l.

Auto

October 02, 2023

DBRS Ratings GmbH (DBRS Morningstar) assigned provisional credit ratings to the following classes of notes (collectively, the Rated Notes) to be issued by Auto ABS Italian Stella Loans 2023-1 S.r.l. (the Issuer):

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

DBRS Morningstar did not assign credit ratings to the Class Z Notes (together with the Rated Notes, the Notes) also expected to be issued in the transaction.

The provisional credit rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date. The provisional credit ratings on the Class B, Class C, and Class D Notes address the ultimate payment of scheduled interest (and timely when most senior class outstanding) and the ultimate repayment of principal by the final maturity date. The provisional credit rating on the Class E Notes addresses the ultimate payment of scheduled interest and the ultimate repayment of principal by the final maturity date.

The provisional credit ratings are based on information provided to DBRS Morningstar by the Issuer and its agents as of the date of this press release. These credit ratings will be finalised upon review of the final version of the transaction documents and of the relevant opinions. If the information therein were substantially different, DBRS Morningstar may assign different final credit ratings to the Rated Notes.

CREDIT RATING RATIONALE
The Issuer is a special-purpose entity, incorporated for the purpose of issuing asset-backed securities. Only the Class A Notes Class B, Class C, and Class D Notes are collateralised and backed by a portfolio of fixed-rate receivables related to Italian standard auto loans and balloon auto loans granted by Stellantis Financial Services Italia S.p.A. (SFSI; the Seller, or the Originator) to private individuals and commercial debtors residing in the Republic of Italy. SFSI will also act as the Servicer for the transaction. The Class E Notes are uncollateralised and are expected to be issued to fund the cash reserve at closing.

The provisional credit ratings are based on the following considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels that are 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 under which they have invested.
-- The Seller and Servicer’s capabilities with respect to originations, underwriting, servicing, and financial strength.
-- The appointment of a backup servicer facilitator upon closing.
-- 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 Seller’s portfolio.
-- The sovereign credit rating on the Republic of Italy, currently at BBB (high) with a Stable trend.
-- The expected consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that are expected to address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction features a 14-month revolving period scheduled to end in December 2024. During this period, the Issuer will purchase new receivables that the Originator may offer subject to certain eligibility criteria and transfer limits. During the amortisation period, the repayment of the Notes will be pro rata among the Class A to Class D Notes until a sequential redemption event occurs, at which point the amortisation of the Class A to Class D Notes will be fully sequential. Sequential redemption events include, among others, the breach of performance related triggers, the default of the Seller, the termination of the Servicer, or the Seller not exercising the call option. The transaction benefits from a fully funded and nonamortising cash reserve, equal to 1.4% of the Class A to Class D Notes’ initial balance, which is available to the Issuer to pay senior expenses, swap payments, and interest on the Class A to Class D Notes. The Class E Notes are only redeemed through available excess spread.

COUNTERPARTIES
The Bank of New York Mellon SA/NV - Milan Branch (BNYM) has been appointed as the Issuer’s account bank for the transaction. DBRS Morningstar has a Long-Term Senior Debt rating of AA (high) and a Long-Term Deposits rating of AA (high) on BNYM and considers BNYM to meet the relevant criteria to act in this capacity. The transaction documents are expected to contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s legal criteria.

Banco Santander SA (Santander) has been appointed swap counterparty for the transaction. DBRS Morningstar's public Long Term Critical Obligations Rating on Santander is AA (low) with a Stable trend, which meets the criteria to act in such capacity. The hedging documents are expected to contain downgrade provisions consistent with DBRS Morningstar's derivative criteria.

DBRS Morningstar’s credit ratings on the Rated Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related principal amount outstanding and the related interest amounts.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: 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.

Other methodologies referenced in this transaction are listed at the end of this press release.

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. Because of the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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.

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.

The sources of data and information used for these credit ratings include the Originator and its agents. DBRS Morningstar received the following data:
-- Dynamic delinquency, prepayment, and origination data from Q1 2012 to Q2 2023;
-- Static default and recovery data from Q1 2012 to Q2 2023, for the total portfolio and split by new and used vehicles, standard and balloon loans, and private and commercial borrowers;
-- Provisional portfolio data and stratification tables as at 7 September 2023; and
-- A theoretical amortisation of the selected pool.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was supplied with one or more third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

These credit ratings concern expected-to-be-issued new financial instruments. These are the first DBRS Morningstar credit ratings on these financial instruments.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

-- Expected default rate: 2.0%.
-- Expected recovery rate: 52.0%.
-- Loss given default (LGD): 67.4% for the AA (high) (sf) scenario, 64.6% for the AA (low) (sf) scenario, 63.3% for the A (high) (sf) scenario, 57.7% for the BBB (sf) scenario, and 54.9% for the BB (high) (sf) scenario.

Scenario 1: 25% increase in LGD.
Scenario 2: 50% increase in LGD.
Scenario 3: 25% increase in probability of default (PD).
Scenario 4: 50% increase in PD.
Scenario 5: 25% increase in PD and 25% increase in LGD.
Scenario 6: 25% increase in PD and 50% increase in LGD.
Scenario 7: 50% increase in PD and 25% increase in LGD.
Scenario 8: 50% increase in PD and 50% increase in LGD.

DBRS Morningstar concludes that the expected credit ratings under the eight stress scenarios would be:
-- Class A Notes: AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), AA (low) (sf), A (high) (sf), A (sf), and A (low) (sf).
-- Class B Notes: A (sf), A (low) (sf), A (sf), A (low) (sf), A (low) (sf), BBB (sf), BBB (high) (sf), and BBB (sf).
-- Class C Notes: A (low) (sf), BBB (sf), A (low) (sf), BBB (high) (sf), BBB (sf), BBB (sf), BBB (sf), and BB (high) (sf).
-- Class D Notes: BBB (sf), BB (high) (sf), BBB (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), and BB (high) (sf).
-- Class E Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (sf), and BB (low) (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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Daniele Canestrari, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 2 October 2023

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The credit rating methodologies used in the analysis of this transaction can be found at: https://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: 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].

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.

Download This Press Release