Morningstar DBRS Assigns Provisional Credit Ratings to Auto ABS Italian Stella Loans S.r.l. (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 Auto ABS Italian Stella Loans S.r.l. (the Issuer):

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

Morningstar DBRS did not assign credit ratings to the Class Z Notes (together with the Rated Notes, the Notes) also expected to be issued in the transaction.

The provisional credit rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date. The provisional credit ratings on the Class B, Class C, and Class D Notes address the ultimate payment of scheduled interest (and timely when they are the most senior class of notes outstanding) and the ultimate repayment of principal by the final maturity date. The provisional credit rating on the Class E Notes addresses the ultimate payment of scheduled interest and the ultimate repayment of principal by the final maturity date.

CREDIT RATING RATIONALE
The Issuer is a public limited company incorporated under the laws of Italy, acting as a special-purpose entity for the purpose of issuing asset-backed securities. The Issuer has already engaged in a first securitisation transaction in October 2023, which was also carried out in accordance with Italian securitisation law. The new securitisation is fully segregated from a previous securitisation of the Issuer.

Only the Class A Notes, Class B Notes, Class C Notes, and Class D Notes are collateralised and backed by a portfolio of fixed-rate receivables related to Italian standard auto loans and balloon auto loans granted by Stellantis Financial Services Italia S.p.A. (SFSI; the Seller, or the Originator) to private individuals and commercial debtors residing in the Republic of Italy. SFSI will also act as the Servicer for the transaction. The Class E Notes are uncollateralised and are expected to be issued to fund the cash reserve at closing.

The provisional credit ratings are based on the following 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 expected to be issued;
-- The credit quality of SFSI’s portfolio, the characteristics of the collateral, its historical performance, and Morningstar DBRS-projected behaviour under various stress scenarios;
-- SFSI's capabilities with respect to originations, underwriting, servicing, and its position in the market and financial strength;
-- The operational risk review of SFSI, which Morningstar DBRS deems to be an acceptable Servicer;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The expected consistency of the transaction’s legal structure with Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” methodology;
-- The expected consistency of the transaction’s hedging structure with Morningstar DBRS’ “Derivative Criteria for European Structured Finance Transactions” methodology; and,
-- The sovereign rating on the Republic of Italy, currently at BBB (high) with a Stable trend by Morningstar DBRS.

TRANSACTION STRUCTURE
The transaction includes a six-month revolving period during which the Issuer shall purchase additional collateral. During this period, the transaction will be subject to receivables eligibility criteria and concentration limits designed to limit the potential deterioration of the portfolio quality, with which the Issuer will have to comply.

The Class A to Class D Notes amortise pro rata until a sequential redemption event occurs, at which point the amortisation of the Class A to Class D Notes will be fully sequential. Sequential redemption events include, among others, the breach of performance related triggers, the default of the Seller, the termination of the Servicer, or the Seller not exercising the call option. The transaction incorporates a separated interest and principal waterfall that facilitates the distribution of the available distribution amount. The Class E Notes are only redeemed through available excess spread.

The Seller will fund an nonamortising cash reserve account equal to 1.1% of the Class A to Class D Notes’ initial balance on the closing date that will be available to the transaction. The general reserve provides liquidity support to the Rated Notes and is available to pay senior expenses, swap payments, and interest on the Class A to Class D Notes. On certain dates the general reserve is available in full to the principal priority of payments and ultimately provides credit enhancement to the Class A to Class D Notes.

COUNTERPARTIES
BNP Paribas S.A. (BNPP) has been appointed as the Issuer’s account bank for the transaction. Morningstar DBRS has a Long-Term Issuer rating of AA (low) on BNPP and considers BNPP to meet the relevant criteria to act in this capacity. The transaction documents are expected to contain downgrade provisions relating to the account bank consistent with Morningstar DBRS’ criteria.

Banco Santander SA (Santander) has been appointed as the swap counterparty for the transaction. Morningstar DBRS' public Long Term Critical Obligations Rating on Santander is AA (low) with a Stable trend, which meets the criteria to act in such capacity. The hedging documents are expected to contain downgrade provisions consistent with Morningstar DBRS' criteria.

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. The associated financial obligations are the related principal amount outstanding and the related interest amounts.

Morningstar DBRS' credit rating does 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, 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” https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

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/rating-european-consumer-and-commercial-asset-backed-securitisations.

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. Because of the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on 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 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 the Originator and its agents. Morningstar DBRS received the following data split by vehicle subset (e.g., standard/balloon, new/used, and private/commercial borrowers):
-- Quarterly static gross default and recovery data from Q1 2013 to Q1 2024.
-- Dynamic delinquency, prepayment, and origination data from Q1 2012 to Q1 2024.

Morningstar DBRS also received loan-by-loan level information and stratification tables in relation to the provisional portfolio as at 13 May 2024 as well as the related 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 assessment. 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned Rated Notes and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned Rated Notes 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 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 rate: 1.8%.
-- Expected recovery rate: 50.0%.
-- Loss given default (LGD): 70.0% for the AAA (sf) scenario, 67.3% for the AA (sf) scenario, 63.3% for the A (sf) scenario, 62.0% for the A (low) (sf) scenario, and 60.7% for the BBB (high) (sf) scenario.

Scenario 1: 25% increase in LGD.
Scenario 2: 50% increase in LGD.
Scenario 3: 25% increase in probability of default (PD).
Scenario 4: 50% increase in PD.
Scenario 5: 25% increase in PD and 25% increase in LGD.
Scenario 6: 25% increase in PD and 50% increase in LGD.
Scenario 7: 50% increase in PD and 25% increase in LGD.
Scenario 8: 50% increase in PD and 50% increase in LGD.

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios would be:
-- Class A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf), AA (high) (sf), AA (sf), AA (sf), and A (high) (sf).
-- Class B Notes: A (high) (sf), A (low) (sf), A (high) (sf), A (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf), and BBB (sf).
-- Class C Notes: BBB (high) (sf), BBB (low) (sf), BBB (high) (sf), BBB (sf), BBB (sf), BB (high) (sf), BB (high) (sf), and BB (high) (sf).
-- Class D Notes: BBB (high) (sf), BBB (low) (sf), BBB (high) (sf), BBB (sf), BBB (low) (sf), BB (high) (sf), BB (high) (sf), and BB (high) (sf).
-- Class E Notes: BBB (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), and BB (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.

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

Lead Analyst: Sergio Rodas Sanchez, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 May 2024

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

DBRS Ratings GmbH
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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 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
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754
-- 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].