Morningstar DBRS Confirms Credit Ratings on Quarzo S.r.l. - Series 2024-1

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the following classes of notes (collectively, the Rated Notes) issued by Quarzo S.r.l. - Series 2024-1 (the Issuer):
-- Series A1 Notes at AA (high) (sf)
-- Series A2 Notes at AA (high) (sf)
-- Series B Notes at AA (sf)
-- Series C Notes at A (high) (sf)
-- Series D Notes at A (sf)

Morningstar DBRS did not rate the Series J and Series R Notes (together with the Rated Notes, the Notes) also issued in the transaction.

The credit ratings of the Series A1 and Series A2 Notes (collectively, the Series A 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 of the Series B, Series C and Series D Notes address the ultimate payment of interest but the timely payment of scheduled interest when they become the senior-most tranche and the ultimate repayment of principal on or before the legal final maturity date.

CREDIT RATING RATIONALE
The credit rating actions 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 March 2025 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- The current available credit enhancement (CE) to the Rated Notes to cover the expected losses at their respective credit rating levels.

The Notes are backed by a portfolio of fixed-rate unsecured consumer loans granted by Compass Banca S.p.A. (Compass, the originator) to private individuals residing in Italy for the purchase of new and used vehicles, personal consumption and other purposes. Compass is also the initial servicer. The transaction closed in June 2024 with an initial portfolio of EUR 815.0mn and included an initial 6-month revolving period, which ended in December 2024 payment date. After the end of the scheduled revolving period, the Rated Notes together with the Series J Notes will be redeemed pro rata based on the relative tranche thickness at closing (i.e., 86.0%, 5.0%, 3.5%, 2.8% and 2.7% for Series A, Series B, Series C, Series D and Series J Notes, respectively) until a sequential redemption event occurs, after which the non-reversible, fully sequential redemption of the Notes will start.

PORTFOLIO PERFORMANCE
As of the March 2025 payment date, loans that were one to two months and two to three months delinquent represented 0.7% and 0.4% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.6%. Gross cumulative defaults amounted to 0.5% of the aggregate original balance.

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 at 4.24% and 75.00%, respectively.

CREDIT ENHANCEMENT
The credit enhancement is provided by subordination of the junior notes and has remained unchanged since closing due to the revolving period first and the current pro rata amortization schedule. As of March 2025 payment date, the levels of credit enhancement for the Series A, B, C and D Notes stand at 14.0% 9.0%, 5.5% and 2.7%, respectively.

The transaction benefits from a cash reserve initially funded at closing with a subordinated loan from the originator. The cash reserve will amortise to a target amount equal to 1.3% of the outstanding principal balance of the Rated Notes without a floor and can be used to cover senior expenses, senior swap costs and interest payments on the Rated Notes. As of March 2025 payment date the cash reserve is currently at its target of EUR 10.3mn.

Mediobanca Banca di Credito Finanziario S.p.A. (Mediobanca) and Citibank N.A. (Milan Branch) are the account banks for the transaction. Based on Morningstar DBRS' private credit rating on Mediobanca, the Long-Term Issuer Rating on Citibank N.A., 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 Series A Notes, as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

Crédit Agricole Corporate and Investment Bank (CA-CIB) acts as swap counterparty for the transaction. The Morningstar DBRS private rating on CA-CIB meets the criteria to act in such capacity. The downgrade and collateral posting provisions, as defined in the swap documentation, are consistent with the thresholds defined 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 factor(s) 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/454196.

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 (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.

An asset and a cash flow analysis were both conducted.

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 Citibank N.A., London Branch, servicer reports provided by Compass, and loan-level data provided by the European DataWarehouse GmbH. In the context of a newer transaction from the same originator, Morningstar DBRS was provided with updated historical performance data as follows:
-- Static quarterly default data from Q1 2009 to Q4 2024;
-- Static quarterly recovery data from Q1 2009 to Q4 2024;
-- Static quarterly prepayments data from Q1 2009 to Q1 2024;
-- Dynamic quarterly prepayment data from Q1 2009 to Q1 2024; and
-- Dynamic quarterly delinquency data from Q1 2009 to Q1 2024.

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 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 21 June 2024 when Morningstar DBRS finalised the provisional credit ratings on the Rated Notes as follows:
-- Series A1 Notes at AA (high) (sf)
-- Series A2 Notes at AA (high) (sf)
-- Series B Notes at AA (sf)
-- Series C Notes at A (high) (sf)
-- Series D Notes at A (sf)

The lead analyst responsibilities for this transaction have been transferred to Helvia Meana.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.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):
-- Expected default of 4.2%: a 25% and 50% increase in the expected default.
-- Expected recovery of 25% or loss given default (LGD) of 75%: a 25% and 50% increase in the expected LGD.

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 risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and 50% increase in the expected LGD.

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios are as follows:
-- Series A Notes: AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), A (low) (sf), AA (sf), AA (low) (sf), A (low) (sf)
-- Series B Notes: A (high) (sf), A (sf), A (high) (sf), A (low) (sf), BBB (sf), A (high) (sf), A (low) (sf), BBB (sf)
-- Series C Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (sf), BBB (low) (sf), A (low) (sf), BBB (sf), BB (high) (sf)
-- Series D Notes: BBB (high) (sf), BBB (sf), BBB (sf), BB (high) (sf), BB (high) (sf), BBB (sf), BB (high) (sf), BB (high)

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: Helvia Meana, Assistant Vice President,
Rating Committee Chair: David Lautier, Senior Vice President
Initial Credit Rating Date: 31 May 2024
DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführung: Detlef Scholz, Marta Zurita Bermejo
Amtsgericht Frankfurt am Main, HRB 110259

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.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 (16 May 2025)
https://dbrs.morningstar.com/research/454196
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024)
https://dbrs.morningstar.com/research/439913

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.