Morningstar DBRS Takes Credit Rating Actions on Two Red & Black Auto Italy Transactions

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes issued by Red & Black Auto Italy S.r.l. (R&B Auto IT 1) and Red & Black Auto Italy S.r.l. - Compartment 2 (R&B Auto IT 2):

R&B Auto IT 1
-- Class A Notes confirmed at AA (high) (sf)
-- Class B Notes confirmed at AA (low) (sf)
-- Class C Notes upgraded to A (sf) from BBB (high) (sf)
-- Class D Notes upgraded to BBB (low) (sf) from BB (high) (sf)

R&B Auto IT 2
-- Class A1 Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)
-- Class C Notes confirmed at A (high) (sf)
-- Class D Notes confirmed at BBB (high) (sf)
-- Class E Notes upgraded to BBB (sf) from BB (high) (sf)

The credit ratings on the R&B Auto IT 1 Class A and the R&B Auto IT 2 Class A1 Notes address the timely payment of interest and ultimate payment of principal on or before their respective legal final maturity dates. The credit ratings on the Class B, Class C, and Class D Notes in each transaction, as well as the R&B Auto IT 2 Class E Notes, address the ultimate payment of interest and principal on or before their respective legal final maturity dates.

The credit rating actions follow an annual review of each transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses, as of the June 2024 payment date;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The transactions each represent a securitisation of a portfolio of auto loans granted to individual borrowers in Italy for the purchase of new and used vehicles. The receivables are originated and serviced by Fiditalia S.p.A., whose ultimate parent is Société Générale, S.A. The transactions are static and are not subject to residual value risk. The receivables include insurance premia.

Both transactions feature a mixed pro rata/sequential amortisation mechanism, whereby the rated notes initially amortise sequentially until the Class A Notes' support ratio reaches a target level. Thereafter, the rated notes amortise pro rata. However, certain events could cause this feature to stop indefinitely, resulting in the rated notes amortising on a sequential basis.

PORTFOLIO PERFORMANCE
R&B Auto IT 1
As of 31 May 2024, loans two to three months in arrears represented 0.3% of the outstanding portfolio balance, up from 0.2% in June 2023. Loans more than three months in arrears represented 0.6%, up from 0.4% in June 2023. The cumulative gross default ratio was 0.7% and the cumulative net default ratio was 0.6%.

R&B Auto IT 2
As of 31 May 2024, loans two to three months in arrears represented 0.2% of the outstanding portfolio balance and loans more than three months in arrears represented 0.3%, both up from 0.0% at the Morningstar DBRS initial rating. The cumulative gross default and cumulative net default ratios were 0.0%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted an analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions at the B (low) (sf) rating level to the following:
-- R&B Auto IT 1: base case PD of 2.0% and base case LGD of 76.5%
-- R&B Auto IT 2: base case PD of 1.9% and base case LGD of 77.3%

CREDIT ENHANCEMENT AND RESERVES
Credit enhancement (CE) to the rated notes consists of their subordination (excluding the unrated Class J Notes) and overcollateralisation. As of the June 2024 payment date, CE to the rated notes had increased since the Morningstar DBRS initial rating as follows:

R&B Auto IT 1
-- Class A CE to 12.5% from 6.0%;
-- Class B CE to 9.4% from 4.0%;
-- Class C CE to 5.4% from 2.1%;
-- Class D CE to 1.0% from 0.0%.

R&B Auto IT 2
-- Class A1 CE to 10.2% from 8.0%;
-- Class B CE to 7.0% from 5.5%;
-- Class C CE to 3.8% from 3.0%;
-- Class D CE to 1.9% from 1.5%;
-- Class E CE remained at 0.0%.

Each transaction benefits from an amortising cash reserve funded via the Class J Notes issuance. The cash reserves are available to cover senior fees, swap payments, and interest on the rated notes. As of the June 2024 payment date, each cash reserve was at its respective target amount, equal to the floor of EUR 2.5 million for R&B Auto IT 1 (0.25% of the original collateralised notes balance), and EUR 6.1 million for R&B Auto IT 2 (0.5% of the original collateralised notes balance).

The R&B Auto IT 2 cash reserve will start to amortise once both the Class A1 Notes and unrated Class A2 Notes have amortised by at least 50%. From this date, the cash reserve target balance will become equal to 1.1% of the current outstanding balance of the collateralised notes balance, subject to a floor of EUR 1.4 million (0.25% of the original collateralised notes balance).

The Bank of New York Mellon SA/NV - Milan Branch (BNMM) acts as the account bank for each transaction. Based on the Morningstar DBRS public credit rating of BNMM at AA (high), 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 ratings assigned to the R&B Auto IT 1 Class A Notes and the R&B Auto IT 2 Class A1 Notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) acts as the swap counterparty for each transaction. Morningstar DBRS's public Long Term Critical Obligations Rating on DZ Bank of AA is consistent with the first rating threshold as described in Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS's 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 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 transactions 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 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 Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit ratings include investor reports provided by Banca Finanziaria Internazionale S.p.A.

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 R&B Auto IT 1 took place on 8 November 2023, when Morningstar DBRS confirmed its credit ratings on the Class A, Class B, Class C, and Class D Notes at AA (high) (sf), AA (low) (sf), BBB (high) (sf), and BB (high) (sf), respectively.

The last credit rating action on R&B Auto IT 2 took place on 17 October 2023, when Morningstar DBRS finalised its provisional credit ratings on the Class A1, Class B, Class C, Class D, and Class E Notes at AAA (sf), AA (sf), A (high) (sf), BBB (high) (sf), and BB (high) (sf), respectively.

Information regarding Morningstar DBRS credit ratings, including definitions, policies and methodologies is available at 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 each Issuer at the B (low) (sf) credit rating level are as follows:
-- R&B Auto IT 1: base case PD of 2.0% and base case LGD of 76.5%
-- R&B Auto IT 2: base case PD of 1.9% and base case LGD of 77.3%

-- 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.

R&B Auto IT 1 Sensitivity Analysis
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (sf)
-- 50% increase in PD, expected credit rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (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 (sf)

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

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

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

R&B Auto IT 2 Sensitivity Analysis
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 AA (high) (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 (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (sf)
-- 50% increase in PD, expected credit rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

Class C 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 (sf)
-- 50% increase in PD, expected credit rating of A (low) (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)

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

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (sf)
-- 50% increase in LGD, expected credit rating of BBB (sf)
-- 25% increase in PD, expected credit rating of BBB (sf)
-- 50% increase in PD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of 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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Mark Wilder, Senior Vice President
R&B Auto IT 1 Initial Rating Date: 28 September 2021
R&B Auto IT 2 Initial Rating Date: 4 September 2023

DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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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.

-- Legal Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435165/.
-- Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051/.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030/.
-- 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 (25 June 2024), https://dbrs.morningstar.com/research/434970/.
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435278/.
-- Derivative Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435260/.

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 info-DBRS@morningstar.com.