Press Release

DBRS Morningstar Upgrades Credit Ratings on ARTS Consumer S.r.l.

Consumer Loans & Credit Cards

November 24, 2023

DBRS Ratings GmbH (DBRS Morningstar) upgraded its credit ratings on the following notes issued by ARTS Consumer S.r.l. (the Issuer):

-- Class A Notes upgraded to AA (high) (sf) from AA (sf)
-- Class B Notes upgraded to AA (sf) from AA (low) (sf)
-- Class C Notes upgraded to A (high) (sf) from A (low) (sf)
-- Class D Notes upgraded to A (sf) from BBB (sf)

Additionally, DBRS Morningstar removed the Under Review with Positive Implications (UR-Pos.) status on the Class A to Class D Notes of the 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.

The credit 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 credit ratings on the Class C and Class D Notes address the ultimate payment of interest, 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 credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the September 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at their respective credit rating levels.

The transaction is a securitization of two types of fixed rate, general purpose consumer loans (CreditExpress Dynamic and other) granted by UniCredit S.p.A. (UniCredit or the originator) to private individuals residing in Italy.

The transaction was initially structured with a 12-month revolving period, but it ended on the September 2023 payment date, before the scheduled end date (December 2023). The reason for the purchase termination event is the uncleared Class E principal deficiency ledger at the latest payment date. The notes were initially planned to amortise on a pro-rata basis and would continue to do so until a sequential redemption event is triggered, but this trigger was also breached along with the purchase termination event and therefore the Notes are already amortising sequentially. The sequential redemption is non-reversible.

PORTFOLIO PERFORMANCE
As of September 2023, one- to two-months and two- to three-month arrears represented 0.3% of the outstanding portfolio balance, and the cumulative default rate amounted to 0.5% of the aggregate initial and additional portfolio balances. As of September 2023, the 90+ delinquency ratio was 0.6%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 4.0% and 85.0% at the B (low) (sf) rating level, respectively.

CREDIT ENHANCEMENT
As of the September 2023 payment date, credit enhancement to the Class A, Class B, Class C, and Class D Notes was 24.1%, 22.0%, 15.3%, and 11.5%, respectively, up from 21.0%, 19.3%, 13.5%, and 10.2%, respectively, from closing.

The transaction benefits from a cash reserve. The cash reserve will amortise during the amortisation period, subject to a floor of EUR 500,000, and can be used to cover senior expenses, swap costs, and interest payments due on the Class A Notes, and if not deferred, the Class B, Class C, and Class D Notes if the interest and principal collections are not sufficient to cover the shortfall. The reserve was funded at closing with EUR 12.2 million and amortises subject to a target required amount of 1.6% of the outstanding balance of the rated notes. Currently, the general reserve is at its target level of EUR 10.3 million.

BNP Paribas Succursale Italia (BNPP Italy) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on BNPP Italy, 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 credit ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

UniCredit acts as the swap counterparty for the transaction, which meets the criteria to ach in such capacity, based on DBRS Morningstar’s private rating. The transaction documents contain downgrade provisions consistent with DBRS Morningstar’s criteria with respect to swap provider.

DBRS Morningstar’s credit ratings on the notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated Notes are the related Interest Payment Amounts and the related class balances.

DBRS Morningstar’s credit ratings on the notes do not address non-payment 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.

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 the “Master European Structured Finance Surveillance Methodology” (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.

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.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

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/421590/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 credit ratings include investor reports provided by Banca Finanziaria Internazionale S.pA., servicer reports provided by UniCredit 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 rating action on this transaction took place on 13 October 2023, when DBRS Morningstar placed its credit ratings on the Class A to Class D Notes Under Review with Positive Implications following release of updated “Global Methodology for Rating Sovereign Governments”.

The lead analyst responsibilities for this transaction have been transferred to Baran Cetin.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool 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.
-- The base case PD and LGD of the current pool of loans for the Issuer at the B (low) (sf) credit rating level are 4.0% and 85.0%, respectively.
-- The risk sensitivity overview below illustrates the credit 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 credit rating on the Class A Notes would be expected to remain at AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating on the Class A Notes would be expected to remain at AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the credit rating on the Class A Notes would be expected to fall to AA (sf).

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

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

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

Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (sf)
-- 50% increase in LGD, expected credit rating of A (sf)
-- 25% increase in PD, expected credit rating of A (low) (sf)
-- 50% increase in PD, expected credit rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (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: Baran Cetin, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 24 November 2022

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Tel. +49 (69) 8088 3500
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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.

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