Morningstar DBRS Assigns Provisional Credit Ratings to Sunrise SPV 95 S.r.l. - Sunrise 2024-1

DBRS Ratings GmbH (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes (collectively, the Rated Notes) to be issued by Sunrise SPV 95 S.r.l. - Sunrise 2024-1 (the Issuer):

-- Class A1 Notes at AA (high) (sf)
-- Class A2 Notes at AA (high) (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BB (high) (sf)

Morningstar DBRS did not rate the Class M Notes (together with the Rated Notes, the Notes) also expected to be issued in the transaction.

The credit ratings of the Class A1, Class A2 (collectively, the Class A Notes), 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 of the Class C, Class D, and Class E Notes address the ultimate payment of interest but the timely payment of scheduled interest when they become the senior-most tranche and the ultimate repayment of principal on or before the legal final maturity date.

The transaction is a securitisation of fixed-rate consumer, auto, and other-purpose loans granted by Agos Ducato S.p.A. (the originator and servicer) to private individuals residing in Italy.

CREDIT RATING RATIONALE
Morningstar DBRS’ credit ratings are based on the following analytical considerations:
-- The transaction’s structure, including the form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Issuer’s financial obligations according to the terms under which the Rated Notes are issued.
-- The credit quality and the diversification of the collateral portfolio, its historical performance, and the projected performance under various stress scenarios.
-- The operational risk review of Agos Ducato S.p.A.'s capabilities with regard to originations, underwriting, and servicing;
-- The transaction parties’ financial strength with regard to their respective roles.
-- The expected consistency of the transaction’s structure with Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” and “Derivative Criteria for European Structured Finance Transactions” methodologies.
-- The Morningstar DBRS sovereign credit ratings on the Republic of Italy, currently at BBB (high) with a Stable trend.

TRANSACTION STRUCTURE
The transaction includes a 13-month scheduled revolving period. During the revolving period, the originator may offer additional receivables that the Issuer will purchase, provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur such as the originator’s insolvency, the servicer’s replacement, or the breach of performance triggers.

The transaction allocates collections in separate interest and principal priorities of payments and benefits from non-amortising EUR [•] payment interruption risk reserve (equal to 1.25% of initial loan principal balances) and EUR [•] cash reserve (equal to 0.5% of initial loan principal balances) at closing. Both reserves will be initially funded with the notes issuance proceeds and can be used to cover senior expenses and interest payments on the Rated Notes. The cash reserve can also be used to replenish the payment interruption risk reserve and offset defaulted receivables. Principal funds can also be reallocated to cover senior expenses and interest payments on the Rated Notes if the interest collections and both reserves are not sufficient.

The transaction also benefits from a non-amortising rata posticipata reserve to supplement interest amounts that borrowers do not make during payment holidays. This reserve will be funded through the transaction interest waterfalls if specific thresholds are breached and will be released when the threshold breach is cured.

At the end of the revolving period, the Notes will be repaid on a fully sequential basis.

The interest rate risk for the transaction is considered limited as an interest rate swap is in place to reduce the mismatch between the fixed-rate collateral and the Class A Notes.

TRANSACTION COUNTERPARTIES
Crédit Agricole Corporate and Investment Bank (CA-CIB) is the account bank for the transaction. Morningstar DBRS has a private credit rating on CA-CIB, which meets the criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with Morningstar DBRS’ criteria.

CA-CIB is the initial swap counterparty for the transaction. Morningstar DBRS’ private rating on CA-CIB meets the criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with Morningstar DBRS’ criteria.

PORTFOLIO ASSUMPTIONS
As the originator has a long operating history of consumer and auto loan lending in Italy, Morningstar DBRS considers the performance data to be meaningful for detailed, vintage analysis. Morningstar DBRS elected to maintain its assumption of a lifetime expected gross default at 5.0%. Morningstar DBRS also maintained its expected recovery at 10.8%.

Morningstar DBRS’ credit ratings on the Rated 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 Amounts and the Initial Principal Amount Outstanding.

Morningstar DBRS’ 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.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS’ analytical framework can be found in the “Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at: https://dbrs.morningstar.com/research/427030.

Morningstar DBRS 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” (8 January 2024), https://dbrs.morningstar.com/research/426219.

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

Morningstar DBRS 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. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on the 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 Morningstar DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include performance data relating to the receivables that the originator provided through the arrangers, Banca Akros SpA and CA-CIB.

Morningstar DBRS received quarterly static default data from Q1 2012 to Q4 2023, quarterly static recovery data from Q1 2012 to Q4 2023, monthly dynamic arrears and default data from June 2008 to December 2023, and static prepayment rates by annual vintages from 2003 to 2023. Morningstar DBRS also received a set of stratification tables for the loan pool as of 31 January 2024 and its related contractual amortisation profile.

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

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

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

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

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalise the credit ratings.

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

Information regarding Morningstar DBRS’ credit ratings, including definitions, policies, and methodologies, is available on http:/dbrs.morningstar.com/.

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

-- Expected default of 5.0%: a 25% and 50% increase in the expected default.
-- Loss given default (LGD) of 89.2%: a 25% increase in the expected LGD.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and 25% increase in the expected LGD.

Morningstar DBRS concludes that the expected credit ratings under the five stress scenarios are as follows:
-- Class A Notes: AA (sf), A (high) (sf), AA (sf), AA (low) (sf), A (high) (sf)
-- Class B Notes: A (sf), A (low) (sf), AA (low) (sf), A (sf), BBB (high) (sf)
-- Class C Notes: BBB (high) (sf), BBB (low) (sf), A (low) (sf), BBB (sf), BB (high) (sf)
-- Class D Notes: BBB (low) (sf), BB (sf), BBB (sf), BB (high) (sf), BB (low) (sf)
-- Class E Notes: BB (sf), B (sf), BB (high) (sf), B (high) (sf), B (low) (sf)

For further information on Morningstar DBRS 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 Morningstar DBRS’ historical default rates may be published by the Financial Conduct Authority (FCA) in a central repository: https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Kevin Chiang, Senior Vice President
Credit Rating Committee Chair: David Lautier, Senior Vice President
Initial Credit Rating Date: 7 March 2024

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 this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Rating European Consumer and Commercial Asset Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219.
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023),
https://dbrs.morningstar.com/research/420573.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602.
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024),
https://dbrs.morningstar.com/research/427030.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.