Morningstar DBRS Confirms Credit Rating on Multi Lease AS S.r.l. (Multilease 4)

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA (sf) credit rating on the Class A Notes issued by Multi Lease AS S.r.l. (Multilease 4) (the Issuer).

The credit rating addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in February 2047.

CREDIT RATING RATIONALE
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the May 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a securitisation of financial lease contracts granted by Sardaleasing S.p.A. to retail and corporate customers in Italy. The securitised receivables are financial claims towards the payment of regular instalments by lessees but exclude the final optional instalments that include residual value.

As of the May 2024 payment date, the balance of the Class A Notes was EUR 314.7 million, down from EUR 1,321.0 million at closing, and the balance of the Class B Notes was EUR 475.0 million, the same as at closing, because of the sequential amortisation of the notes. The outstanding EUR 923.2 million securitised portfolio consisted of real estate leases (71.6% by loan balance), equipment leases (18.0%), vehicle leases (2.1%), and energetic (2.1%) and naval (6.2%) receivables.

PORTFOLIO PERFORMANCE
As of the May 2024 payment date, loans that were one to two months and two to three months delinquent represented 0.00% and 0.08% of the principal outstanding balance of the portfolio, respectively, while loans that were more than three months delinquent represented 0.07%. There are no gross cumulative defaults reported so far.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 13.5% and 47.0% from 14.6% and 57.0%, respectively, at last annual review.

CREDIT ENHANCEMENT
The subordination of the Class B Notes provides credit enhancement to the Class A Notes. As of the May 2024 payment date, credit enhancement to the Class A Notes was 65.9%, up from 48.2% as of the last annual review.

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 EUR 13.54 million, and its target balance is equal to 1.0% of the outstanding principal of the portfolio as at the beginning of the preceding collection period, with a floor of EUR 6.7 million. The reserve currently stands at EUR 7.2 million and has been at its target since closing.

Following the merger of BNP Paribas Securities Services, Milan Branch into BNP Paribas Succursale Italia, which took place on 1 October 2022, BNP Paribas Succursale Italia (BNP Italia) acts as the account bank for the transaction. Based on the Morningstar DBRS' private rating of BNP Italia, 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 the account bank 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 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 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, GOVERNANCE CONSIDERATIONS
General 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: Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051.

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 surveillance section of 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 this credit rating include quarterly reports provided by Zenith Service S.p.A. (the Master Servicer) and 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 rating, 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 28 July 2023, when Morningstar DBRS upgraded its credit ratings on the Class A Notes to AAA (sf) from AA (sf).

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://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 13.5% 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.

Class A 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)

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: Mark Wilder, Senior Vice President
Initial Credit Rating Date: 30 July 2021

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.

-- 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
-- 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
-- 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.
-- Rating CLOs and CDOs of Large Corporate Credit (23 February 2024),
https://dbrs.morningstar.com/research/428544.

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 https://dbrs.morningstar.com or contact us at [email protected].