Morningstar DBRS Confirms Credit Rating on Auto ABS Italian Rainbow Loans S.r.l. (2022)

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA (sf) credit rating on the Class A Notes issued by Auto ABS Italian Rainbow Loans S.r.l. (2022) (the Issuer).

The credit rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in June 2038.

CREDIT RATING RATIONALE
The confirmation follows the annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the January 2025 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at their AAA (sf) credit rating level.

The transaction is a securitisation of fixed-rate receivables related to balloon auto loans granted by Stellantis Financial Services Italia S.p.A. (Stellantis FSI or the seller) (formerly, Banca PSA Italia S.p.A.) to private and commercial debtors residing in Italy. Stellantis FSI services the portfolios and Santander Consumer Finance S.A. is appointed as the backup servicer facilitator.

The transaction included an initial two-year revolving and ramp-up period which ended in May 2024. During the two-year revolving period and following the seller's request, the Issuer could purchase additional receivables exclusively through additional subscription payments under the notes provided that certain conditions set out in the transaction documents were satisfied. The notes could be increased up to the notes' maximum amount of EUR 800 million; the amount of the additional subscription payment was calculated pro rata based on its relevant percentage and the applicable pro rata share (90% for the Class A Notes and 10% for the Class Z Notes); however, all purchases were subject to eligibility criteria, and there were concentration limits and performance triggers in place to mitigate any potential portfolio deterioration. Following the end of the revolving period in May 2024, the Class A Notes started to amortise.

PORTFOLIO PERFORMANCE
As of the January 2025 payment date, loans 30 to 60 days and 60 to 90 days delinquent represented 0.3% and 0.1% of the outstanding portfolio balance, respectively. Gross cumulative defaults represented 0.6% of the aggregate original portfolio balance, with cumulative principal recoveries of 25.3% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Following the end of the revolving period, and taking into account updated historical performance data received from the originator, Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD to 1.90% and 47.03% respectively, from 1.85% and 44.48% at the last annual review, respectively.

Morningstar DBRS opted to elect mid-range core multiples. The inclusion of incremental balloon stresses means the derived adjusted multiple is above the higher range used at the AAA (sf) level.

CREDIT ENHANCEMENT
The subordination of the junior notes provides credit enhancement to the rated notes. As of the January 2025 payment date, credit enhancement to the Class A Notes increased to 14.6% from 10.0% at the time of the last annual review and at closing, following the end of the revolving period and the start of the Class A Notes amortisation.

The transaction benefits from an amortising general reserve, available to cover shortfalls on senior fees, expenses, and interest payments on the Class A Notes. The general reserve was initially set to meet the required amount corresponding with 1.5% of the Class A and Class Z Notes' balance and following the revolving period the reserve amortises to a target of 0.6% of the outstanding notes balance subject to a floor of EUR 500,000. The reserve is currently at its target level of EUR 1.4 million.

The Bank of New York Mellon SA/NV - Milan Branch (BNYM-MB) acts as the transaction account bank. Based on Morningstar DBRS' reference rating of AA (high), the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the Class A Notes, as described in Morningstar DBRS' "Legal and 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' 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 rating is the Master European Structured Finance Surveillance Methodology (4 February 2025) https://dbrs.morningstar.com/research/447080.

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 this credit rating include investor reports provided by Zenith Service S.p.A., additional information provided by Stellantis FSI, and loan-level data provided by the European DataWarehouse GmbH.

Additionally, in the context of a newer transaction from the same originator, Morningstar DBRS received updated historical performance data from the originator as follows:
-- Quarterly static gross default and recovery data from Q1 2013 to Q3 2024;
-- Dynamic delinquency, prepayment, and origination data from Q1 2012 to Q3 2024.

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

At the time of the initial credit rating, 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.

The last credit rating action on this issuer took place on 28 February 2024, when Morningstar DBRS upgraded the Class A Notes to AAA (sf) from AA (high) (sf).

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 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 are 1.90% and 47.03%, 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.

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 AA (high) (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 (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.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 27 April 2022

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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 (4 February 2025)
https://dbrs.morningstar.com/research/447080
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024)
https://dbrs.morningstar.com/research/439583
-- Rating European Structured Finance Transactions Methodology (19 November 2024)
https://dbrs.morningstar.com/research/443199
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024)
https://dbrs.morningstar.com/research/443196
-- 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/439604.

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