Morningstar DBRS Assigns Provisional Credit Ratings to Brignole CQ 2024 S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by Brignole CQ 2024 S.r.l. (the Issuer):

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

Morningstar DBRS did not rate the Class R Notes also expected to be issued in the transaction.

The credit rating of the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal on or before the legal final maturity date. The credit ratings of the Class B, Class C, and Class D Notes address the ultimate payment of interest but the timely payment of scheduled interest when they become the senior-most tranche and the ultimate repayment of principal on or before the legal final maturity date. The credit rating of the Class X Notes addresses the ultimate payment of interest and the ultimate repayment of principal on or before the legal final maturity date.

The transaction represents the issuance of Class A, Class B, Class C, Class D, and Class X Notes (collectively, the Rated Notes), as well as the Class R Notes (together with the Rated Notes, the Notes) backed by a pool of approximately EUR 175.54 million of fixed-rate receivables related to Italian salary- and pension-assignment loans as well as payment delegation loans granted by Creditis Servizi Finanziari S.p.A. (Creditis; the Originator and Servicer) to individuals residing in Italy. The transaction is static.

The Class X Notes are not collateralised by receivables and rely entirely on excess spread to pay interest and repay principal. Their amortisation with interest funds is expected to be completed in 25 instalments.

CREDIT RATING RATIONALE
Morningstar DBRS based its credit ratings on the following analytical 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 issued.
-- The credit quality and the diversification of the collateral portfolio, its historical performance, and the projected performance under various stress scenarios.
-- The operational risk review of Creditis with regard to its originations, underwriting, and servicing.
-- The appointment of a backup servicer facilitator upon closing.
-- The transaction parties' financial strength with regard to their respective roles.
-- Morningstar DBRS sovereign credit rating on the Republic of Italy, currently at BBB (high) with a Stable trend.
-- The expected consistency of the transaction's legal structure with Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" and "Derivative Criteria for European Structured Finance Transactions" methodologies, the presence of legal opinions that are expected to address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction is static and allocates collections through separate interest and principal priority of payments and benefits from a cash reserve initially funded at closing with the Class X Notes' issuance proceeds. The cash reserve will amortise to a target amount equal to 1.2% of the outstanding principal balance of the Class A, Class B, Class C, and Class D Notes with a floor at 0.6% of the initial portfolio principal amount at closing and can be used to cover senior expenses, senior swap costs, interest on the Class A Notes, and, if not deferred, interest payments on the Class B, Class C, and Class D Notes. The cash reserve also provides credit enhancement to the Rated Notes (excluding the Class X Notes) through its excess amount that is debited to the principal deficiency ledger and diverted to the principal waterfall, thus available to pay down principal on the notes.

After the transaction closing, the Class A, Class B, Class C, and Class D Notes will be redeemed pro rata in the principal waterfalls based on the relative tranche thickness at closing (i.e., 81.0%, 10.5%, 7.4%, and 1.1% for the Class A, Class B, Class C, and Class D Notes, respectively) until a sequential redemption event occurs, after which the nonreversible, fully sequential redemption of the Class A, Class B, Class C, and Class D Notes will start. On the other hand, the Class X Notes will also begin to amortise immediately after the transaction closing in the interest waterfalls according to a fixed scheduled amortization in 25 instalments until full redemption.

The collateralised Notes pay interest indexed to one-month Euribor plus a margin and the interest rate risk arising from the mismatch between the floating-rate notes and the fixed-rate collateral is expected to be reduced through an interest rate swap with an eligible counterparty.

TRANSACTION COUNTERPARTIES
Crédit Agricole Corporate and Investment Bank, Milan branch (CA-CIB) is the account bank for the transaction. Morningstar DBRS has a private credit rating on CA-CIB, which meets Morningstar DBRS' criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with Morningstar DBRS' criteria with respect to CA-CIB's role as account bank.

Natixis S.A. (Natixis) is the swap counterparty for the transaction. Morningstar DBRS does not publicly rate Natixis, but maintains a private rating on the entity and concluded that Natixis meets the minimum requirements to act in this capacity in relation to the ratings assigned. The transaction documents include downgrade provisions compliant 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 interest payment amounts and the related class balances.

Morningstar DBRS' credit rating does not address nonpayment 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
General Considerations 
The high exposure to public-sector employees, pensioners, and civil servants makes the transaction dependent on the Italian sovereign.

Social (S) Factors
Morningstar DBRS considers some of the key drivers behind the latest rating action on the Republic of Italy, namely Human Capital and Human Rights, as significant rating factors for the rating action. According to the International Monetary Fund's World Economic Outlook, Italy's GDP per capita of USD 38,326 in 2023 was relatively low compared with its euro area peers. This factor is considered significant and it has been taken into account primarily in the "Economic Structure and Performance" building block.

Governance (G) Factors
Morningstar DBRS considers some of the key drivers behind the latest rating action on the Republic of Italy, namely Institutional Strength, Governance and Transparency, as significant rating factors for the rating action. This particularly reflects Italy's institutional arrangements, which affect government effectiveness and the government's capacity to address economic challenges and implement forward-looking policies. According to the World Bank, Italy ranked in the 67th percentile for Government Effectiveness in 2022. This factor is considered significant and it has been taken into account primarily in the "Fiscal Management and Policy" and "Political Environment" building blocks. At the same time, Morningstar DBRS views the Bribery, Corruption, and Political Risks factor as relevant, also reflecting weak scores in the Rule of Law and in the Control of Corruption, according to the World Bank.

Environmental (E) Factors
There were no Environmental factor(s) that had a significant or relevant effect on the credit analysis.

Credit rating actions on the Republic of Italy are likely to have an impact on these credit ratings. ESG factors that have a significant or relevant effect on the credit analysis of the Republic of Italy are discussed separately at https://dbrs.morningstar.com/issuers/17689. 
  
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 Factors in Credit Ratings (13 August 2024) at https://dbrs.morningstar.com/research/437781.

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 Rating European Consumer and Commercial Asset-Backed Securitisations (22 August 2024), https://dbrs.morningstar.com/research/438224.

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.

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 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 this credit rating include the originator directly or through the co-arranger, BofA Securities Europe S.A.

Morningstar DBRS received the following data and information, split by product type (pension and salary assignments) and salary assignments furtherly split by public employees, parapublic employees, private employees, and payment delegations:
-- Static quarterly default data from Q1 2010 to Q2 2024,
-- Static quarterly recovery data from Q3 2010 to Q2 2024,
-- Static quarterly prepayment data from Q1 2010 to Q2 2024,
-- Dynamic monthly prepayment data from March 2010 to June 2024,
-- Dynamic monthly delinquency data from March 2010 to June 2024.

Morningstar DBRS was also provided with detailed loan-by-loan characteristics and stratification tables of the outstanding portfolio as at 12 August 2024 as well as the related amortisation schedule.

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

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 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize 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 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):
-- Probability of default (PD) used: Expected PD of 30.6%, 14.7%, 12.1%, 11.3%, and 8.4% for the AA (low) (sf), A (sf), BBB (high) (sf), BBB (sf) and B (low) (sf) scenarios, a 25% and 50% increase on the applicable PD.
-- Recovery rate used: Expected recovery rate of 36.3%, 50.1%, 67.2%, 71.8%, and 98.6% for the AA (low) (sf), A (sf), BBB (high) (sf), BBB (sf) and B (low) (sf) scenarios.
-- Loss given default (LGD) used: Expected LGD of 63.7%, 49.9%, 32.8%, 28.2%, and 1.4% for the AA (low) (sf), A (sf), BBB (high) (sf), BBB (sf) and B (low) (sf) scenarios, a 25% and 50% increase on the applicable LGD.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase on the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase on the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase on the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase on the expected LGD.

Morningstar DBRS concludes that the expected credit ratings under the five stress scenarios are as follows:
-- Class A Notes: A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (high) (sf), A (sf)
-- Class B Notes: A (sf), A (low) (sf), A (sf), BBB (high) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf)
-- Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf), BBB (sf), BBB (sf), BBB (sf), BBB (low) (sf)
-- Class D Notes: BBB (sf), BBB (sf), BBB (sf), BBB (sf), BBB (low) (sf), BBB (sf), BBB (low) (sf), BBB (low) (sf)

No sensitivity was conducted on the Class X Notes.

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: Ilaria Maschietto, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 9 September 2024

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 (22 August 2024), https://dbrs.morningstar.com/research/438224.
-- Rating European Structured Finance Transactions Methodology (25 June 2024), https://dbrs.morningstar.com/research/434970.
-- Legal Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435165.
-- Operational Risk Assessment for European Structured Finance Originators (6 August 2024), https://dbrs.morningstar.com/research/437541.
-- Operational Risk Assessment for European Structured Finance Servicers (6 August 2024), https://dbrs.morningstar.com/research/437543.
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435278.
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024), https://dbrs.morningstar.com/research/439043.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781.

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 info-DBRS@morningstar.com.