Morningstar DBRS Upgrades Credit Ratings on Golden Bar (Securitisation) S.r.l. - Series 2022-1

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit ratings on the Class A and Class B Notes (the rated notes) issued by Golden Bar (Securitisation) S.r.l. - Series 2022-1 (the Issuer) as follows:

-- Class A Notes to AA (low) (sf) from A (sf)
-- Class B Notes to A (high) (sf) from A (low) (sf)

Additionally, Morningstar DBRS removed the Under Review with Positive Implications (UR-Pos.) status on the rated notes of the Issuer. These credit ratings were placed UR-Pos. following the release of an updated Rating European Consumer and Commercial ABS methodology which introduced a revision of the application of stresses to salary-assignment loans. For more information, please see: https://dbrs.morningstar.com/research/426219.

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in December 2044. The credit rating on the Class B Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

CREDIT RATING RATIONALE
The credit rating upgrades 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 March 2024 payment date;
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective credit rating levels;
-- No purchase termination events have occurred to date; and
-- The updated “Rating European Consumer and Commercial Asset-Backed Securitisations” methodology.

The transaction represents the issuance of the Class A, Class B, and Class Z Notes, backed by a portfolio of fixed-rate receivables related to Italian salary- and pension-assignment as well as payment delegation loans granted by Santander Consumer Bank S.p.A. (SCB or the servicer) to individuals residing in Italy. The transaction is structured with a 24-month ramp-up period until the May 2024 payment date (excluded), during which the Issuer may purchase new receivables, provided that certain conditions set out in the transaction documents are satisfied.

PORTFOLIO PERFORMANCE
As of the 27 February 2024 portfolio cut-off date, loans that were two to three months in arrears represented 0.3% of the outstanding portfolio balance, while the 90+ delinquency ratio was 0.5%. The gross cumulative default ratio stood at 1.7% of the total purchased receivables since closing.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
As the revolving period is about to end, Morningstar DBRS updated its base-case PD and LGD assumptions to 7.3% and 10.2%, respectively, based on its loan-by-loan analysis on the remaining pool of receivables.

CREDIT ENHANCEMENT
Credit enhancement to the rated notes consists of the subordination of the respective junior notes. As of the March 2024 payment date, credit enhancements available to the Class A Notes and Class B Notes were 10.0% and 5.0%, respectively, unchanged from closing because of the ramp-up period.

The transaction benefits from an amortising cash reserve, which was fully funded at closing with a subordinated loan provided by SCB. The cash reserve is available to cover expenses, senior fees, and interest payments on the rated notes. The cash reserve target is equal to 1.7% of the aggregated principal amount outstanding of the rated notes, with a floor of EUR 1,000,000. The cash reserve target will step up to 2.5% if the rating of the servicer’s owner, Santander Consumer Finance S.A. (SCF), falls below BBB, or if SCF ceases to own at least 75% of the share capital of SCB. As of the March 2024 payment date, the cash reserve was at its target of EUR 10.0 million.

Furthermore, the transaction benefits from a set-off reserve, which the servicer will fund in case of a set-off reserve trigger event (i.e., if the rating of SCF falls below BBB or if SCF ceases to own at least 75% of the share capital of SCB). The set-off reserve is designed to mitigate the retention risk deriving from early termination of loans whose financed amount contains capitalised start-up fees and upfront costs. As of the March 2024 payment date, the reserve was not funded.

Banco Santander S.A., Milan Branch acts as the account bank for the transaction. Based on Morningstar DBRS’ private rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the rated notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

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.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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, AND GOVERNANCE CONSIDERATIONS

Social (S) and Governance (G) Factors
The high exposure to public-sector employees, pensioners, and civil servants makes the transaction dependent on the creditworthiness of the Italian sovereign. Morningstar DBRS considers some of the key drivers behind the latest rating action on Italy – namely Human Capital and Human Rights (S) and Institutional Strength, Governance & Transparency (G) – to be significant rating factors. According to the IMF World Economic Outlook, Italy’s GDP per capita of USD 34,085 in 2022 was relatively low compared with its euro area peers. According to the World Bank, Italy ranked for Governance Effectiveness at 67th percentile in 2022. Morningstar DBRS 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 the Republic of 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 the Republic of Italy are discussed separately at https://dbrs.morningstar.com/research/422494.

There were no Environmental 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 methodologies applicable to these credit ratings are: “Master European Structured Finance Surveillance Methodology” (7 March 2024), https://dbrs.morningstar.com/research/429051, and the “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.

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

The sources of data and information used for these credit ratings include servicer reports, investor reports, and additional performance information provided by SCB as well as loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial credit ratings, Morningstar DBRS was supplied with third-party assessments. However, this did not affect 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.

The last credit rating action on this transaction took place on 24 January 2024, when Morningstar DBRS placed the credit ratings on the rated notes UR-Pos. Prior to that, on 15 May 2023, Morningstar DBRS confirmed its credit ratings on the Class A and Class B Notes at A (sf) and A (low) (sf), respectively.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on 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):

-- Morningstar DBRS 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 are 7.3% and 10.2%, 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.

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

Class B 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 (high) (sf)
-- 50% increase in PD, expected credit rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (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 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, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 30 May 2022

DBRS Ratings GmbH
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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://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024), https://dbrs.morningstar.com/research/429054
-- 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
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- 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 [email protected].