Morningstar DBRS Upgrades and Confirms Credit Ratings on ARTS Consumer S.r.l. and ARTS Consumer 2023 S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the rated notes issued by ARTS Consumer S.r.l. (ARTS 2022) and ARTS Consumer S.r.l. 2023 (ARTS 2023):

ARTS 2022
-- Class A Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class B Notes upgraded to AAA (sf) from AA (sf)
-- Class C Notes upgraded to AA (sf) from A (high) (sf)
-- Class D Notes upgraded to AA (low) (sf) from A (sf)

ARTS 2023
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class C Notes upgraded to AA (sf) from AA (low) (sf)
-- Class D Notes upgraded to A (high) (sf) from A (sf)

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

The credit rating actions follow annual reviews of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies, defaults, and losses, as of the latest respective payment dates;
-- 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.

ARTS 2022 and ARTS 2023 are securitizations of fixed rate, unsecured, amortising, general purpose consumer loans granted by UniCredit S.p.A. (UniCredit or the originator) to private individuals residing in Italy.

The transactions were initially structured with respective 12-month revolving periods, but they both ended prematurely. The reason for the purchase termination events is the uncleared Class E principal deficiency ledger in the respective transactions. The notes were initially planned to amortise on a pro-rata basis and would continue to do so until a sequential redemption event is triggered, but the triggers in both transactions were also breached along with the purchase termination events and therefore the Notes are already amortising sequentially. The sequential redemptions are non-reversible.

PORTFOLIO PERFORMANCE
As of the latest payment dates,90+- day arrears and gross cumulative default ratios were as follows:

-- ARTS 2022: 1.22% and 2.88%, respectively;
-- ARTS 2023: 1.07% and 0.84%, respectively;

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 as follows:

-- ARTS 2022: 3.9% and 85.0%, respectively; and
-- ARTS 2023: 4.1% and 85.0%, respectively.

CREDIT ENHANCEMENT
In each transaction, credit enhancement to the rated notes is provided by the subordination of the junior classes and the respective cash reserves.

-- ARTS 2022: As of the September 2024 payment date, credit enhancement to the Class A, Class B, Class C, and Class D Notes was 37.6%, 34.2%, 22.6%, and 16.3%, respectively, up from 24.1%, 22.0%, 15.3%, and 11.5%, respectively, from September 2023 payment date.
-- ARTS 2022: As of the August 2024 payment date, credit enhancement to the Class A, Class B, Class C, and Class D Notes was 23.6%, 21.6%, 15.1%, and 11.5%, respectively, up from 21.0%, 19.2%, 13.4%, and 10.2%, respectively, from closing.

Both transactions benefits from respective cash reserves. The cash reserves will amortise during the amortisation periods, subject to a floor of EUR 500,000, and can be used to cover senior expenses, swap costs, and interest payments due on the Class A Notes, and if not deferred, the Class B, Class C, and Class D Notes if the interest and principal collections are not sufficient to cover the shortfall. The reserves were funded at closing with EUR 12.2 million and amortise subject to a target required amount of 1.6% of the outstanding balance of the respective rated notes. Currently, the general reserves for ARTS 2022 and ARTS 2023 are at their target levels of EUR 5.7 million and EUR 10.7 million, respectively.

BNP Paribas Succursale Italia (BNPP Italy) acts as the account bank for the transactions. Based on Morningstar DBRS' private rating on BNPP Italy, 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 notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

UniCredit acts as the swap counterparty for the transactions, which meets the criteria to act in such capacity, based on Morningstar DBRS' private rating. The transaction documents contain downgrade provisions consistent with Morningstar DBRS' criteria with respect to swap provider.

Morningstar DBRS' credit rating on the applicable class addresses 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, 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 Factors in Credit Ratings (13 August 2024) 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 the "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.

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 Banca Finanziaria Internazionale S.pA., servicer reports provided by UniCredit 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.

The last credit rating action on ARTS 2022 took place on 24 November 2023, when Morningstar DBRS upgraded its ratings on the Class A, Class B, Class C, and Class D Notes to AA (high) (sf), AA (sf), A (high) (sf), and A (sf), respectively, from AA (sf), AA (low), (sf), A (low) (sf), and BBB (sf), respectively, and removed the Under Review with Positive Implications (UR-Pos.) status on the Class A to Class D Notes. These credit ratings had been placed under UR-Pos. following the release of an updated sovereign methodology.

The last credit rating action on ARTS 2023 took place on 11 October 2023, when Morningstar DBRS assigned its credit ratings on the Class A, Class B, Class C, and Class D Notes at AAA (sf), AA (high) (sf), AA (low) (sf), and A (sf), respectively.

The lead analyst responsibilities for ARTS 2023 transaction have been transferred to Baran Cetin.

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 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 at the B (low) (sf) credit rating level are as follows:
-- ARTS 2022: 3.9% and 85.0%, respectively;
-- ARTS 2023: 4.1% and 85.0%, 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.

ARTS 2022:
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)

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 (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 A (high) (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 D 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 A (high) (sf)
-- 50% increase in PD, expected credit rating of A (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)

ARTS 2023:
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 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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (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 (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 A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (high) (sf)

Class C 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 A (high) (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 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)

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: Baran Cetin, Senior Analyst
Rating Committee Chair: Mark Wilder, Senior Vice President
Initial Rating Dates:
-- ARTS 2022: 24 November 2022
-- ARTS 2023: 11 October 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 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 (6 August 2024), https://dbrs.morningstar.com/research/437540
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435278
-- Rating European Structured Finance Transactions Methodology (18 September 2024), https://dbrs.morningstar.com/research/439581
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024), https://dbrs.morningstar.com/research/439043

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/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.