Morningstar DBRS Confirms Credit Rating on Rocky 2021-1 SPV S.r.l. Following Amendment

DBRS Ratings GmbH (Morningstar DBRS) confirmed its A (high) (sf) credit rating on the Class A Notes issued by Rocky 2021-1 SPV S.r.l. (the Issuer) following a transaction amendment (the Amendment).

The credit rating addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in April 2041.

CREDIT RATING RATIONALE
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- The Amendment to the transaction, consisting of an extension of the revolving period by 24 months, executed on 24 April 2024;
-- Portfolio performance, in terms of the level of delinquencies and defaults, as of the March 2024 payment date.
-- No revolving period termination events have occurred.
-- Updated probability of default (PD), loss given default (LGD), and expected loss assumptions for the remaining collateral pool, considering the updated quarterly vintage performance data received in the context of the Amendment;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (high) (sf) credit rating level.

The transaction is a securitisation backed by a pool of fixed-rate receivables related to consumer and auto loans granted by Deutsche Bank S.p.A. (DB SpA or the originator) to private individuals residing in Italy. The originator also services the portfolio. The transaction closed in April 2021 and included an initial amortisation period until the Class A Notes reached an outstanding amount of EUR 3.5 billion; once the Class A Notes reached this level in August 2021, the transaction entered into the revolving period, which is scheduled to end on the payment date in May 2026 (following the Amendment). The revolving period may end prematurely following the breach of certain performance triggers that would cause a revolving period termination event. To date, all performance triggers have been met.

The transaction is also naturally hedged against interest rate risk as both the receivables and the Class A Notes pay a fixed interest rate.

AMENDMENT
On 24 April 2024, the Issuer entered into an amendment to the transaction. The Amendment is effective as of the May 2024 payment date and entails a renewal of the revolving period for an additional 24 months until the May 2026 payment date (included).

PORTFOLIO PERFORMANCE
As of the March 2024 payment date, loans that were one to two months and two to three months delinquent represented 0.8% and 0.4% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.9%. There are no gross defaults reported to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its base case PD to 6.9% from 7.0% and maintained its LGD assumptions at 80%, based on updated historical gross loss and net loss data ranging from Q1 2012 to Q3 2023 that Morningstar DBRS received from the originator. The portfolio composition Morningstar DBRS uses in its analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

CREDIT ENHANCEMENT
The subordination of the Class B Notes provides credit enhancement to the Class A Notes. As of the March 2024 payment date, credit enhancement to the Class A Notes was 18.3%, up from 16.5% at closing following the initial amortisation period, which allowed for some credit enhancement to build up.

The transaction benefits from an amortising cash reserve account, which is available to cover senior expenses and missed interest payments on the Class A Notes. This account was funded at closing with an amount equal to EUR 23.8 million through a part of the proceeds of the Class B Notes issuance. The cash reserve has a target balance equal to 0.5% of the aggregate notes balance and is static during the initial amortisation and the revolving period. After the revolving period ends, the reserve will amortise in line with the targeted amount down to a floor equal to EUR 9.5 million.

DB SpA is a dominant counterparty for the transaction as it acts as the servicer, account bank, and paying agent. It also holds the servicer collection account, the collection account, the cash reserve account, the investment account (if any), and the payments account. Based on Morningstar DBRS’ private credit rating on DB SpA, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to DB SpA to be consistent with the credit rating assigned to the Class A Notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

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

Morningstar DBRS’ credit rating does not address non-payment 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
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 rating is: “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 methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

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

Morningstar DBRS has conducted a review of the transaction’s legal documents provided in the context of the Amendment. A review of any other transaction legal documents was not conducted as the 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 this credit rating include monthly investor reports provided by DB SpA and loan-level data provided by the European DataWarehouse GmbH, and the following historical information received from the seller:
-- Static and Dynamic quarterly gross default data from Q1 2012 to Q3 2023;
-- Static and Dynamic quarterly recovery data from Q1 2012 to Q3 2023;
-- Static and Dynamic quarterly data from Q1 2012 to Q3 2023; and
-- Static and Dynamic quarterly data from Q1 2012 to Q3 2023.

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

In the context of the Amendment, Morningstar DBRS was 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 this credit rating 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 18 April 2023, when Morningstar DBRS confirmed its A (high) (sf) credit rating on the Class A Notes.

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 rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (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 6.9% and 80.0%, 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.

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 (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 BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (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.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 30 April 2021

DBRS Ratings GmbH
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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.
-- 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 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.
-- 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].