DBRS Morningstar Upgrades and Confirms Credit Ratings on Two Series of the Marzio Finance S.r.l. Securitisation Programme

DBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on two series of notes issued by Marzio Finance S.r.l. (the Issuer) in the context of a securitisation programme (the programme):

-- Series 7-2019 (M7): Class A Notes confirmed at AA (sf)
-- Series 8-2020 (M8): Class A Notes upgraded to AA (sf) from AA (low) (sf)

The credit ratings address the timely payment of interest and the ultimate payment of principal on or before the final maturity dates of June 2044 for M7 and March 2045 for M8.

The credit rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies, defaults, and losses, as of the November 2023 payment dates;
-- Updated portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the rated notes to cover the expected losses at the AA (sf) credit rating level.

Marzio Finance S.r.l. is a EUR 10,000,000,000 programme established in August 2017 and amended in November 2018 and March 2020, designed to follow the standard structure under the Italian securitisation law. The programme represents the issuance of notes under various series backed by pools of receivables related to salary and pension assignment loans as well as payment delegation loans granted by IBL – Istituto Bancario del Lavoro S.p.A. (IBL or the Originator) to Italian employees and pensioners. IBL Servicing S.p.A. (fully owned by IBL) services the portfolios with IBL acting as subservicer and Zenith Service S.p.A. appointed as backup servicer.

PORTFOLIO PERFORMANCE
For M7, as of the October 2023 cut-off date, loans that were one to two months and two to three months in arrears represented 1.8% and 1.0% of the outstanding portfolio balance, respectively, while loans more than three months in arrears represented 2.7%. The gross cumulative default ratio stood at 4.6% of the initial portfolio.

For M8, as of the October 2023 cut-off date, loans that were one to two months and two to three months in arrears represented 1.7% and 1.1% of the outstanding portfolio balance, respectively, while loans more than three months in arrears represented 1.9%. The gross cumulative default ratio stood at 3.9% of the initial portfolio.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the outstanding pool of receivables and updated its base case annualised PD and LGD assumptions as follows:
-- M7: 7.3% and 5.2%, respectively, and
-- M8: 7.4% and 6.1%, respectively.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolios and the additional reserve provide credit enhancement to the Class A Notes in the two transactions. As of the November 2023 payment dates, credit enhancement levels were as follows:

--M7: 42.1%, up from 18.0% as of the November 2022 payment date, and
--M8: 24.2%, up from 16.0% as of the November 2022 payment date.

The two series benefit from amortising cash reserves available to cover senior fees and expenses and interest payments on the Class A Notes as well as from additional reserves that provide actual credit enhancement to the rated notes on top of liquidity support. As of the November 2023 payment dates, both the cash reserve and the additional reserve for M7 were at their respective floor levels, while for M8 the cash reserve was equal to its target level of EUR 1.8 million and the additional reserve was at its floor level.

Cash trapping conditions are in place to trap the excess spread upon the breach of certain triggers if the cumulative net default ratio rises above a certain threshold.

Each series also benefits from a prepayment reserve, available to cover losses arising from the set-off of capitalised fees.

Citibank N.A./Milan Branch acts as the account bank for the transactions. Based on DBRS Morningstar’s private credit rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structures, 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.

DBRS Morningstar’s credit ratings on both Class A Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does 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
General Considerations

Social (S) and Governance (G) Factors
The high exposure to public-sector employees, pensioners, and civil servants makes the programme dependent on the creditworthiness of the Italian sovereign. DBRS Morningstar considers some of the key drivers behind the latest credit rating action on the Republic of Italy (Italy) —namely Human Capital and Human Rights (S) and Institutional Strength, Governance & Transparency (G)—to be significant credit rating factors. According to the International Monetary Fund World Economic Outlook, Italy’s GDP per capita of USD 34,085 in 2022 was low compared with its euro-area peers. At the same time, according to the World Bank, Italy ranked in the 67th percentile for Governance Effectiveness in 2022. 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”.

Credit rating actions on Italy are likely to have an impact on these credit ratings. ESG factors that have a significant or relevant effect on the credit analysis of Italy are discussed separately at https://www.dbrsmorningstar.com/research/422494/dbrs-morningstar-confirms-republic-of-italy-at-bbb-high-stable-trend.

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

DBRS Morningstar analysed the transaction structures 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” (11 December 2023), https://www.dbrsmorningstar.com/research/425148/master-european-structured-finance-surveillance-methodology.

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 principal methodology.

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://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 servicer reports, investor reports, and additional performance information provided by IBL 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 these transactions took place on 27 December 2022, when DBRS Morningstar upgraded its credit rating on the Class A Notes of M7 to AA (sf) from AA (low) (sf) and confirmed its credit rating on the Class A Notes of M8 at AA (low) (sf).

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 transactions parameters on the credit ratings, 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 M7 and M8 are as follows:
-- M7: 7.3% and 5.2%, respectively, and
-- M8: 7.4% and 6.1%, 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.

M7:
Class A 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 (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 AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

M8:
Class A 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 (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 (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (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: Pascale Kallas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Credit Rating Dates:
-- M7: 9 October 2019
-- M8: 16 March 2020

DBRS Ratings GmbH
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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.

-- Master European Structured Finance Surveillance Methodology (11 December 2023),
https://www.dbrsmorningstar.com/research/425148/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (22 October 2023),
https://www.dbrsmorningstar.com/research/422276/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://www.dbrsmorningstar.com/research/425149/rating-european-structured-finance-transactions-methodology.
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://www.dbrsmorningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://www.dbrsmorningstar.com/research/416784/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].