Morningstar DBRS Confirms Credit Ratings on Leone Arancio RMBS S.r.l

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the notes (together, the Class A Notes) issued by Leone Arancio RMBS S.r.l (the Issuer), as follows:

-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)

The credit ratings on the Class A Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in October 2083.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the July 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- No revolving period termination events have occurred; and
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) credit rating level.

The Issuer is a securitisation consisting of Italian first-lien residential mortgages originated and serviced by ING Bank N.V., Milan Branch (ING Bank Italy). The transaction closed in September 2023 with an initial collateral portfolio of EUR 6.49 billion and includes a three-year revolving period running through October 2026, during which principal collections can be used to purchase additional receivables. Furthermore, during the revolving period the Issuer will be entitled to increase the outstanding balance of the notes in order to purchase additional eligible receivables. The maximum aggregate amount of additional purchased receivables is limited to EUR 1.51 billion at the end of the three-year period and to EUR 750 million per year, for a maximum portfolio balance up to EUR 8.00 billion. Further purchased receivables are subject to certain eligibility criteria and concentration limits being met. Notes shall be issued on a pro rata basis in order to maintain the initial capital structure.

PORTFOLIO PERFORMANCE
As of the July 2024 payment date, loans that were 30 to 60 days delinquent and 60 to 90 days delinquent represented each 0.1% of the outstanding portfolio balance, while loans more than 90 days delinquent also amounted to 0.1%. There have not been any defaults reported to date, defined as loans at least 360 days in arrears or classified as Crediti in Sofferenza by the servicer.

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 8.4% and 14.7%, respectively, decreased slightly since the initial rating analysis due to the removal of sovereign risk adjustments applied previously.

CREDIT ENHANCEMENT
Credit enhancement to the Class A Notes is provided by the subordination of the unrated Class J Notes. As of the July 2024 payment date, credit enhancement for the Class A Notes was 11.5%, unchanged since the Morningstar DBRS initial rating date due to the inclusion of the revolving period. Prior to an event of default and following the end of the revolving period, the Class A1 and Class A2 Notes amortise in sequential order. Should an event of default occur, the Class A Notes will repay principal pro rata among each other.

The transaction benefits from a liquidity facility provided by ING Bank Italy, available to cover shortfalls in senior costs, swap payments, and interest on the Class A Notes. The facility commitment is equal to EUR 80.0 million initially, equal to 1.0% of the total nominal amount of the portfolio, and following the end of the revolving period will have a target balance equal to 1.0% of the aggregate outstanding notes balance, subject to a floor of EUR 40.0 million.

ING Bank N.V. acts as the issuer account bank for the transaction. Based on Morningstar DBRS' public Critical Obligations Rating on ING Bank N.V. of 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 issuer account bank to be consistent with the credit ratings assigned to the Class A Notes, as described in Morningstar DBRS' "Legal 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' 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
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 Factors in Credit Ratings 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 ratings is: Master European Structured Finance Surveillance Methodology (6 August 2024), https://dbrs.morningstar.com/research/437540.

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. Due to the inclusion of a revolving period in the transaction, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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 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 ING Bank Italy 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 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.

This is the first credit rating action since the Initial Rating Date.

The last credit rating action on this transaction took place on 12 September 2023, when Morningstar DBRS assigned credit ratings of AAA (sf) to the Class A Notes.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 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 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 8.4% and 14.7%, respectively.

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

Class A2 Notes Risk Sensitivity:
-- 25% increase of the LGD, expected credit rating of AA (high) (sf)
-- 50% increase of the LGD, expected credit rating of AA (low) (sf)
-- 25% increase of the PD, expected credit rating of AA (high) (sf)
-- 50% increase of the PD, expected credit rating of AA (low) (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected credit rating of AA (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected credit rating of A (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected credit rating of A (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected credit rating of A (low) (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: Rehanna Sameja, Senior Vice President
Initial Rating Date: 12 September 2023

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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.

-- Master European Structured Finance Surveillance Methodology (6 August 2024),  
https://dbrs.morningstar.com/research/437540.  
-- European RMBS Insight Methodology (25 March 2024) and European RMBS Insight Model v9.0.0.0, 
https://dbrs.morningstar.com/research/430103.  
-- European RMBS Insight: Italian Addendum (28 June 2024), 
https://dbrs.morningstar.com/research/435263.  
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.
-- Operational Risk Assessment for European Structured Finance Servicers (6 August 2024), 
https://dbrs.morningstar.com/research/437543.  
-- Operational Risk Assessment for European Structured Finance Originators (6 August 2024), 
https://dbrs.morningstar.com/research/437541. 
-- 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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.