Morningstar DBRS Finalises Provisional Credit Ratings on Red & Black Auto Italy S.r.l. - Compartment 3

DBRS Ratings GmbH (Morningstar DBRS) finalised its provisional credit ratings on the following classes of notes (the Rated Notes) issued by Red & Black Auto Italy S.r.l (the Issuer):

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

Morningstar DBRS did not assign a credit rating to the Class J Notes (together with the Rated Notes, the Notes) also issued in this transaction.

The finalised credit rating on the Class B Notes is one notch higher than the provisional credit rating Morningstar DBRS assigned. As a result of lower overall margins of the Rated Notes and a lower swap fixed rate, the cash flow analysis on the Class B Notes improved in their credit rating stress scenario.

The Notes are issued in the context of a securitisation transaction designed to follow the standard structure under Italian securitisation law. The securitisation is fully segregated from the Issuer's previous securitisations in November 2021 and October 2023, which were also carried out in accordance with Italian securitisation law.

The credit rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date. The credit ratings on the Class B Notes, Class C Notes, and Class D Notes address the ultimate payment of interest (timely when most senior) and the ultimate repayment of principal by the final maturity date.

CREDIT RATING RATIONALE
The Rated Notes are backed by a portfolio selected from a pool of receivables related to auto loans granted by Fiditalia S.p.A. (Fiditalia; the Originator or the Seller), to individuals residing in Italy. The collateral portfolio is serviced by Banca Finanziaria Internazionale S.p.A. (Banca Finint) as the master servicer that delegates to Fiditalia (the Sub-Servicer) the management, collection, and recovery of the receivables. The proceeds of the Class J Notes have been used to fund the cash reserve.

Morningstar DBRS' credit ratings are based 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 have been issued;
-- The credit quality of Fiditalia's portfolio, the characteristics of the collateral, its historical performance, and Morningstar DBRS-projected behaviour under various stress scenarios;
-- Fiditalia's capabilities with respect to originations, underwriting, servicing, and its position in the market and financial strength.
-- The operational risk review of Fiditalia, which Morningstar DBRS deems to be an acceptable Servicer;
-- The opinion on the back-up Servicer and its role in the transaction;
-- The transaction parties' financial strength with regard to their respective roles;
-- The consistency of the transaction's legal structure with Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology;
-- The consistency of the transaction's hedging structure with Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology; and,
-- The sovereign rating on the Republic of Italy, currently rated BBB (high) with a Stable trend by Morningstar DBRS.

TRANSACTION STRUCTURE
The transaction has a mixed sequential/pro rata amortisation structure. Initially, all collections from the receivables will pay down the Class A Notes in accordance with the relevant priority of payments. Once the Class A Notes support ratio reaches 12%, principal payments on the Rated Notes will be allocated on a pro rata basis, unless a sequential redemption event occurs as outlined in the transaction documents. Sequential redemption events include, among others, the breach of performance-related triggers, the termination of the Servicer, the Seller's default, or the Seller not exercising the call option.

The transaction benefits from liquidity support provided by a cash reserve, with an initial balance equal to 1.1% of the Rated Notes' initial balance. The balance of the cash reserve will not amortise in line with the Rated Notes until the amortisation of the Class A Notes reaches 50% since issuance. Thereafter, the balance of the cash reserve will be replenished to a target amount equal to the maximum of (1) 1.1% of the aggregate of the principal amount of the Rated Notes at the relevant period; (2) 0.25% of the initial balance of the Rated Notes (up to the date when the Rated Notes are fully repaid or a trigger notice is served).

The cash reserve is available to cover the payment of senior expenses, swap payments, and interest on the Rated Notes prior to being replenished. The cash reserve also provides credit enhancement to the Rated Notes and is available to repay principal on the Rated Notes when it is partially released and on the date on which the Rated Notes can be redeemed in full (or the final maturity date).

All underlying contracts are fixed rate, while the Rated Notes pay a floating rate. The Rated Notes are indexed to one-month Euribor. The interest rate risk is mitigated through an interest rate swap for the Rated Notes.

COUNTERPARTIES
The Bank of New York Mellon SA/NV-Milan Branch (BNYM) has been appointed as the Issuer's account bank for the transaction. Morningstar DBRS has a Long-Term Senior Debt rating of AA (high) and a Long-Term Deposits Rating of AA (high) on BNYM, and considers BNYM to meet the relevant criteria to act in such capacity. The transaction documents contain downgrade provisions related to the account bank consistent with Morningstar DBRS's criteria.

DZ BANK AG Deutsche Zentral Genossenschaftsbank, Frankfurt am Main (DZ Bank) has been appointed as the swap counterparty. Morningstar DBRS has a Long-Term Senior Debt rating of AA (low) and a Long Term Critical Obligations Rating of AA on DZ Bank. The hedging documents contain downgrade provisions consistent with Morningstar DBRS' criteria.

Morningstar DBRS' credit ratings on the Rated Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. For the Rated Notes, the associated financial obligations are the related interest amount and the related principal amount outstanding.

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, 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" 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 "Rating European Consumer and Commercial Asset-Backed Securitisations" (18 September 2024), https://dbrs.morningstar.com/research/439583.

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 these credit ratings include the Seller and its agents.
Morningstar DBRS received:
-- Static gross loss quarterly data from Q1 2014 to Q2 2024, split by new and used cars;
-- Static recovery quarterly data from Q1 2014 to Q2 2024, split by new and used cars;
-- Dynamic delinquencies and originations (monthly) from January 2014 to June 2024, split by new and used cars;
-- Dynamic prepayments (monthly) from January 2014 to June 2024, data available for total portfolio, and split by product (standard/dual plan loans) and vehicle type (new/used) only from 2022;
-- Loan-by-loan file and stratifications tables as of 30 September 2024; and
-- 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 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.

These credit ratings concern newly issued new financial instruments. These are the first Morningstar DBRS credit ratings on these financial instruments.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on 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):

-- Expected default rate: 2.2%
-- Expected recovery rate: 21.8%
-- Loss given default (LGD): 86.9% for the AAA (sf) scenario, 86.3% for the AA (high) (sf) scenario, 84.6% for the A (high) (sf) scenario and 83.4% for the A (low) (sf) scenario.

Scenario 1: 25% increase in LGD
Scenario 2: 50% increase in LGD
Scenario 3: 25% increase in PD
Scenario 4: 50% increase in PD
Scenario 5: 25% increase in PD and 25% increase in LGD
Scenario 6: 25% increase in PD and 50% increase in LGD
Scenario 7: 50% increase in PD and 25% increase in LGD
Scenario 8: 50% increase in PD and 50% increase in LGD

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios would be:
-- Class A Notes: AAA (sf), AAA (sf), AAA (sf), AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf), and AA (sf)
-- Class B Notes: AA (sf), AA (sf), AA (sf), AA (low) (sf), AA (low) (sf), AA (low) (sf), A (sf), and A (sf)
-- Class C Notes: A (low) (sf), A (low) (sf), A (low) (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf), and BBB (sf)
-- Class D Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf), and 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: Jose Escandell, Senior Analyst
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Date: 21 August 2024

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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.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024)
https://dbrs.morningstar.com/research/439583.
-- Rating European Structured Finance Transactions Methodology (18 September 2024),
https://dbrs.morningstar.com/research/439581.
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024),
https://dbrs.morningstar.com/research/439043.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913.
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571.
-- 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.