Press Release

DBRS Morningstar Upgrades Credit Ratings on Giada Sec. S.r.l. and Giada Sec. S.r.l. (2022)

Structured Credit

November 17, 2023

DBRS Ratings GmbH (DBRS Morningstar) upgraded its credit ratings on the Class A Notes issued by each Giada Sec. S.r.l. (Giada) and Giada Sec. S.r.l. (2022) (Giada 2022; together with Giada, the Issuers) to A (high) (sf) from A (sf).

Additionally, DBRS Morningstar removed the Under Review with Positive Implications (UR-Pos.) status on the Class A Notes of each Issuer. These credit ratings were placed UR-Pos. following the release of an updated sovereign methodology. For more information, please see: https://www.dbrsmorningstar.com/research/421863.

All credit ratings address the timely payment of interest and ultimate payment of principal by the legal final maturity date of each transaction.

The credit rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- The portfolios’ performances, in terms of delinquencies, defaults, and losses, as of the latest payment dates;
-- The one-year base case probability of default (PD) and default and recovery rates on the receivables;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (high) (sf) credit rating level;
-- The updated sovereign methodology; and
-- No purchase termination events or breach of purchase conditions have occurred to date.

The transactions are revolving cash flow securitisations collateralised by a portfolio of unsecured loans and secured loans (only Giada 2022) granted to Italian small and medium-size enterprises, entrepreneurs, artisans, and producer families by Intesa Sanpaolo S.p.A. (ISP) and other regional banks fully owned by ISP. ISP also acts as the servicer of the portfolio. Giada closed in December 2020, and its revolving period is scheduled to end in March 2026. Giada 2022 closed in December 2022, and its revolving period is expected to end in January 2026. However, the revolving periods will terminate prematurely if certain performance-related triggers are breached (e.g., if gross cumulative defaults rise above 8.5% or if the cash reserve does not reach its target).

Around 81.5% and 85.6% of the current portfolio balance of Giada and Giada 2022, respectively, is assisted by the Fondo Centrale di Garanzia (FCG) guarantee, a state guarantee that covers up to 100% of the loan balance. The weighted-average coverage for the current portfolio is equal to 85.1% and 86.0%, respectively.

ISP covers all key roles, including, but not limited to, the servicer, account bank, and paying agent. DBRS Morningstar considers the counterparty risk to be consistent with the ratings assigned to the Class A Notes, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar’s credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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.

PORTFOLIO PERFORMANCE
The two portfolios are currently performing within DBRS Morningstar’s expectations. As of the latest cut-off dates, the 90+-day arrears and gross cumulative default ratios were as follows:
-- Giada: 0.4% and 0.9%, respectively.
-- Giada 2022: 0.8% and 0.3%, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar continues to base its analysis on a stressed portfolio composition, constructed considering the purchase conditions applicable during the revolving period.

In particular, DBRS Morningstar maintained annualised PDs of 2.1% and 4.4% for unsecured and mortgage-backed loans, respectively, for the portfolios assumed to be outstanding after the end of the revolving periods. In the case of Giada, DBRS Morningstar assumed an annualised PD of 1.8% and 2.3% for corporate and retail borrowers, respectively, with respect to the portfolio assumed to be reinvested during the revolving period. In the case of Giada 2022, DBRS Morningstar assumed an annualised PD of 3.2% for the replenished portfolio.

Furthermore, DBRS Morningstar calculated the following stressed lifetime default and recovery assumptions at the A (high) (sf) credit rating level:
-- Giada: 37.1% and 25.9%, respectively.
-- Giada 2022: 38.2% and 35.5% respectively.
The recovery rates continue to be determined by giving only partial credit to the FCG guarantee.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement to the Class A Notes. As of the latest payment date, the Class A Notes had the following credit enhancement:
-- Giada: 33.8%, slightly down from 34.3% at closing.
-- Giada 2022: 32.2%, slightly down from 32.4% at closing.

The transactions benefit from an amortising and unfloored cash reserve, available to cover senior fees and interest payments on the Class A Notes. As of the latest payment date, the cash reserves were at their targets of EUR 112.00 million for Giada and EUR 194.75 million for Giada 2022.

Both transactions are structured with an additional cash reserve, funded upon breach of certain triggers. The reserve would be funded via a subordinated loan upon a downgrade of ISP below BB (high), for a target amount equal to EUR 900 million, and would act as a partial mitigant to set off risk.

ISP acts as the account bank. Based on DBRS Morningstar’s account bank reference rating on ISP of A (low), which is one notch below its Long Term Critical Obligations Rating of “A”, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction’s structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Social (S) Factors
DBRS Morningstar considered the presence of loans backed by the FCG Guarantee to be a relevant social factor for Giada and a significant social factor for Giada 2022 (Social Impact of Product & Services) as outlined within “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings”. DBRS Morningstar assumed reduced loss severity for the loans that are backed by the FCG Guarantee. This is credit positive given the reduced loss expectations for guaranteed loans.

The S factor for Giada has changed from the prior credit rating disclosure and no longer affects the credit rating, as the lifetime assumptions of the stressed portfolio have improved compared with the previous annual review, making the credit rating output less sensitive to the effect of the FCG guarantee.

There were no Environmental/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 transactions’ structures in its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is “Rating CLOs Backed by Loans to European SMEs” (22 October 2023), https://www.dbrsmorningstar.com/research/422274/rating-clos-backed-by-loans-to-european-smes.

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

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transactions, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transactions’ legal documents.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating actions.

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://dbrs.morningstar.com/research/421590

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 investor reports provided by Banca Finanziaria Internazionale S.p.A. and KPMG Fides Servizi di Amministrazione S.p.A., servicer reports and additional performance information provided by ISP, 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 credit ratings, DBRS Morningstar was supplied with 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.

The last credit rating actions on both transactions took place on 13 October 2023 when DBRS Morningstar placed both credit ratings Under Review with Positive Implications following release of updated sovereign methodology.

Prior to that, on 28 February 2023 DBRS Morningstar confirmed its A (sf) credit rating on the Class A Notes of Giada following the transaction amendment.

The lead analyst responsibilities for Giada 2022 have been transferred to Pascale Kallas.

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).

-- Probability of Default Rates Used: base case PD of 2.2% for Giada and a base case PD of 3.0% for Giada 2022, a 10% and 20% increase of the base case PD.
-- Recovery Rates Used: at the A (high) (sf) credit rating level, base case recovery rate of 25.9% for Giada and 35.5% for Giada 2022, a 10% and 20% decrease in the base case recovery rate.

For Giada, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade on the Class A Notes to A (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would also lead to a confirmation on the Class A Notes at A (high) (sf).

For Giada 2022, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade on the Class A Notes to A (low) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would also lead to a confirmation on the Class A Notes at A (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: 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: Pascale Kallas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
-- Giada: 21 December 2020
-- Giada 2022: 6 December 2022

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 these transactions 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