Morningstar DBRS Confirms Credit Ratings on Quinto Sistema Sec. 2017 S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the Class A and Class B1 Notes issued by Quinto Sistema Sec. 2017 S.r.l. (the Issuer) at AA (sf) and A (high) (sf), respectively.

The credit ratings address the timely payment of interest and the ultimate payment of principal by the final maturity date in December 2034.

CREDIT RATING RATIONALE
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 February 2025 payment date;
-- Updated 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.

The transaction is a securitisation of a pool of receivables related to salary and pension assignment loans as well as payment delegation loans granted by multiple original lenders to Italian employees and pensioners. The major originators are Sigla S.p.A., Figenpa S.p.A., ADV Finance S.p.A., Spefin Finanziara S.p.A., Banca Sistema S.p.A. (Banca Sistema), and Pitagora S.p.A. The portfolios were transferred to Banca Sistema before being sold to the Issuer. Banca Sistema services the portfolio, with Banca Finanziaria Internazionale S.p.A. (Banca Finint) appointed as backup servicer. The transaction had an initial ramp-up period, which ended in February 2019, during which the Issuer purchased additional portfolios. The notes were issued in a partially paid form. An amendment to the notes' amortisation mechanism took place in July 2018 after Morningstar DBRS' initial credit rating date (14 June 2018). In September 2022, an additional portfolio was purchased through further instalments on all the outstanding notes, following a transaction amendment.

PORTFOLIO PERFORMANCE
The portfolio is currently performing within Morningstar DBRS' initial expectations. As of the latest cut-off dates, the 90+-day arrears and gross cumulative default ratios were 0.7% and 8.9%, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its base-case PD and LGD assumptions to 10.3% and 22.3%, respectively, based on the current pool composition.

CREDIT ENHANCEMENT
Overcollateralisation of the performing outstanding collateral portfolio provides credit enhancement. As of the February 2025 payment date, credit enhancement to the Class A and Class B1 Notes was 35.8% and 10.2%, respectively, up from 22.3% and 5.2%, respectively, as of the March 2024 payment date.

The transaction benefits from an amortising cash reserve, available to cover senior fees, expenses, and missed interest payments on the rated notes. The reserve's target is 1.2% of the collateral portfolio outstanding principal or EUR 2.4 million as of the February 2025 payment date.

The transaction also features a prepayment reserve, available to cover losses arising from the set-off of capitalised fees. The reserve's target is 1.5% of the collateral portfolio outstanding principal or EUR 3.1 million as of the February 2025 payment date.

BNP Paribas Succursale Italia acts as the account bank for the transaction. Based on Morningstar DBRS' private rating on the account bank, 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 ratings assigned to the notes, as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

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. 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

Social (S) and Governance (G) Factors
The high exposure to public-sector employees, pensioners, and civil servants makes the transaction dependent on the creditworthiness of the Italian sovereign. Morningstar DBRS considers some of the key drivers behind the latest rating action on Italy - namely Human Capital and Human Rights (S) and Institutional Strength, Governance & Transparency (G) - to be significant rating factors. According to the IMF Word Economic Outlook, Italy's GDP per capita of USD 39,012 in 2023 was relatively low compared with its euro area peers. According to the World Bank, Italy ranked for Governance Effectiveness at 67th percentile in 2022. Morningstar DBRS took these factors into account in the "Economic Structure and Performance", "Fiscal Management and Policy", and "Political Environment" building blocks of its "Global Methodology for Rating Sovereign Government.

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/research/441774.

There were no Environmental 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 these credit ratings is "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.

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 payment and investor reports provided by Banca Finint, servicer reports provided by Banca Sistema, 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 and at the time of the amendment in 2022, 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.

The last credit rating action on this transaction took place on 15 March 2024 when Morningstar DBRS upgraded the credit ratings on the Class A and Class B1 Notes to AA (sf) and A (high) (sf), respectively, from AA (low) (sf) and A (sf), respectively.

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):

-- 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 10.2% and 22.3%, 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 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 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 AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

Class B1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD, expected credit rating of A (high) (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 A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (high) (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)

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: Pascale Kallas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 14 June 2018

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.

-- Master European Structured Finance Surveillance Methodology (4 February 2025), https://dbrs.morningstar.com/research/447080.
-- 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.
-- 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.
-- 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.