Morningstar DBRS Upgrades and Confirms Credit Ratings on Three Alba Leasing Transactions

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the Notes issued by Alba 11 SPV S.r.l. (A11), Alba 12 SPV S.r.l. (A12), and Alba 13 SPV S.r.l. (A13):

A11:
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class C Notes upgraded to AA (high) (sf) from AA (sf)

The credit rating on the Class B Notes addresses the timely payment of interest and the ultimate repayment of principal by the final maturity date, while the credit rating on the Class C Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the final maturity date in accordance with the Issuer’s default definition provided in the transaction documents (i.e., the timely payment of interest only when they become the most-senior tranche).

A12:
-- Class A2 Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (high) (sf) from AA (sf)

The credit rating on the Class A2 Notes addresses the timely payment of interest and the ultimate repayment of principal by the final maturity date, while the credit rating on the Class B Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the final maturity date in accordance with the Issuer’s default definition provided in the transaction documents (i.e., the timely payment of interest only when they become the most-senior tranche).

A13:
-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (high) (sf) from A (high) (sf)

The credit ratings on the Class A1 and Class A2 Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date, while the credit rating on the Class B Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date (i.e., the timely payment of interest only when they become the most-senior tranche).

CREDIT RATING RATIONALE
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 latest payment date for each transaction (March 2024 for A11 and A13, April 2024 for A12);
-- Updated probability of default (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 their respective credit rating levels.

The three transactions are securitisation of financial lease receivables granted by Alba Leasing S.p.A. (Alba Leasing) to corporates, small businesses, and individual enterprises with registered offices in Italy. Financial leases typically provide an option for the lessee to acquire the asset upon payment of the last instalment (which incorporates the assets’ residual value). In these transactions, the securitised receivables do not include the residual value. Alba Leasing also services the collateral portfolios, with Banca Finanziaria Internazionale S.p.A. (Banca Finint) appointed as the backup servicer in the three transactions.

PORTFOLIO PERFORMANCE
The three portfolios are performing within Morningstar DBRS’s expectations. Delinquencies are low, with 60 to 90 day and 90+ day arrears ratios as follows:
-- A11: 0.03% and 0.07%, respectively, as of the February 2024 cut-off date,
-- A12: 0.01% and 0.04%, respectively, as of the March 2024 cut-off date, and
-- A13: both at 0.02%, as of the February 2024 cut-off date.

The gross cumulative default ratios for A11, A12, and A13 were equal to 2.8%, 1.6%, and 0.9% of the initial portfolio balances, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and, following the receipt of updated performance historical data from Alba Leasing, updated its base case annualised PD and LGD assumptions. Particularly, Morningstar DBRS assumed a one year base case PD of 1.6% for vehicles; 1.7% for equipment leases; 1.0% for real estate leases; and 10.1% for air, naval, and train leases.
Morningstar DBRS updated the base case lifetime LGD at 47.0% for all the transactions.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolios provides credit enhancement to the rated notes across the three transactions. As of their respective latest payment dates, credit enhancement levels were as follows:

A11:
-- Class B Notes: 76.9%, up from 49.2% as of the March 2023 payment date;
-- Class C Notes: 44.7%, up from 28.6% as of the March 2023 payment date.

A12:
-- Class A2 Notes: 73.3%, up from 51.6% as of the April 2023 payment date;
-- Class B Notes: 30.6%, up from 21.4% as of the April 2023 payment date.

A13:
-- Class A1 Notes: 70.0%, up from 57.8% at transaction closing in June 2023;
-- Class A2 Notes: 44.4%, up from 36.6% at transaction closing in June 2023;
-- Class B Notes: 18.3%, up from 15.0% at transaction closing in June 2023.

The three transactions’ structures benefit from amortising cash reserves (debt service reserve), which provide liquidity support to the notes, covering senior expenses and interest payments on the rated notes (only prior to the occurrence of an interest subordination event for A11, with respect to the Class B and Class C Notes; and for A12 and A13, with respect to the Class B Notes). For A11 and A12 the reserves are at their respective floor levels.
The reserves are currently equal to their target levels of EUR 5.4 million for A11, EUR 4.7 million for A12, and EUR 9.1 million for A13.

Citibank N.A./Milan Branch (for A11) and BNP Paribas, Succursale Italia (for A12 and A13) act as the account bank for the transactions. Based on Morningstar DBRS’ private credit rating on the account banks, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structures, Morningstar DBRS considers the risk arising from the exposure to the account banks to be consistent with the credit ratings assigned to the 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 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 structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to these credit ratings is: “Master European Structured Finance Surveillance Methodology” (7 March 2024), https://dbrs.morningstar.com/research/429051.

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

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

The sources of data and information used for these credit ratings include investor reports provided by Banca Finint, loan-level data provided by the European DataWarehouse GmbH, as well as servicer reports, additional information and the following historical performance data provided by Alba Leasing, split by vehicles, equipment, real estate, and air/naval/train lease contracts:
-- Static quarterly default data from Q1 2013 to Q4 2023,
-- Static quarterly recovery data from Q1 2015 to Q4 2023,
-- Dynamic quarterly delinquency data from Q1 2014 to Q4 2023,
-- Dynamic quarterly default data from Q1 2015 to Q4 2023, and
-- Dynamic quarterly prepayment data from Q1 2013 to Q4 2023.

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 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.

The last credit rating actions on these transactions were as follows:
-- A11: on 27 March 2024 Morningstar DBRS discontinued its AAA (sf) credit rating on the Class A2 Notes. Prior to that, on 15 June 2023, Morningstar DBRS confirmed its credit ratings on the Class A2 and Class B Notes at AAA (sf) and AA (high) (sf), respectively, and upgraded its credit rating on the Class C Notes to AA (sf) from A (high) (sf).
-- A12: on 29 January 2024 Morningstar DBRS discontinued its AAA (sf) credit rating on the Class A1 Notes. Prior to that, on 15 June 2023, Morningstar DBRS confirmed its credit ratings on the Class A1 and Class A2 Notes at AAA (sf) and upgraded its credit rating on the Class B Notes to AA (sf) from A (high) (sf).
-- A13: on 27 June 2023, when Morningstar DBRS assigned credit ratings on the Class A1 and Class A2 Notes at AAA (sf) and on the Class B Notes at A (high) (sf).

The lead analyst responsibilities for A13 have been transferred to Pascale Kallas.

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 transactions 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 pools 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 Issuers are as follows:
-- A11: 5.2% and 47.0%, respectively,
-- A12: 5.3% and 47.0%, respectively, and
-- A13: 6.5% and 47.0%, 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.

A11:
Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 50% increase in PD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

A12:
Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 50% increase in PD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

A13:
Class A1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (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 (low) (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.

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 Credit Rating Dates:
-- A11: 25 June 2020
-- A12: 2 November 2021
-- A13: 27 June 2023

DBRS Ratings GmbH
Neue Mainzer Straße 75
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://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730
-- Rating CLOs Backed by Loans to European SMEs (23 February 2024) and Morningstar DBRS SME Diversity Model 2.6.1.4, https://dbrs.morningstar.com/research/428543
-- 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
-- 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].