The rating actions are as follows:

Class A1 (ISIN IT0005285231), EUR 478.6m: final rating AAA_SF
Class A2 (ISIN IT0005285249), EUR 233.8m: final rating AAA_SF
Class B (ISIN IT0005285256), EUR 145.8m: final rating A+_SF
Class C (ISIN IT0005285264), EUR 100.2m: final rating BBB-_SF
Class J (ISIN IT0005285272), EUR 164.3m: not rated

Click here to access the full rating report.

The transaction is a static true-sale cash securitisation of Italian lease receivables originated by Alba Leasing S.p.A in its ordinary course of business. The portfolio comprises of leases mainly to Italian SMEs (73.3%), and smaller amounts to larger corporate borrowers (10%) and individual entrepreneurs (16.7%) used for the financing of transportation assets (25.8%), equipment (54.5%), real estate properties (18.2%) and air, naval & rail assets (1.5%). This transaction is not exposed to residual value risk because none of the asset´s residual value is securitised.

Rating rationale

The ratings reflect: i) the legal and financial structure of the transaction; ii) the quality of the underlying collateral given the relatively improving Italian macroeconomic environment; iii) the ability of Alba Leasing S.p.A. (Alba) as originator/seller and servicer; and iv) the counterparty exposure to Citibank N.A. as account bank and paying agent.

Class A1 and A2 are protected by their senior position and benefit respectively from 57.9% and 36.9% of credit enhancement from subordination and a debt service reserve. Furthermore, the combined interest and principal priorities of payments ensures liquidity support beyond the reserve for the payment of interest to all rated classes of notes. As a result, the risk of missed coupon payments on Class A1 and Class A2 is remote, which supports the rating.

Class B benefits from 23.8% of credit enhancement and the debt service reserve.

Class C mainly benefits from 14.8% credit enhancement and the debt service reserve. The rating also reflects Class C interest payment become subordinated to Class B principal if cumulative portfolio defaults exceed 10% of the portfolio´s initial notional. All rated notes benefit from a mechanism linked to cumulative portfolio defaults, which traps excess spread to ensure sufficient collateralisation.

Key rating drivers

Static portfolio (positive). The portfolio will start to amortise immediately after closing, reducing the risk of performance volatility compared to revolving transactions.

Back-up servicer (positive). The transaction benefits from back-up servicer Securitisation Services S.p.A., which can take over within 30 business days if needed. Securitisation Services S.p.A. cooperates with two other back-up servicers, Agenzia Italia S.p.A. and Trebi Generalconsult S.r.l.

No residual value risk (positive). Investors are not exposed to the risk that obligors do not exercise the residual option, nor to the possible loss of residual value upon the originator’s liquidation. However, the issuer benefits from interest paid on the residual value during the life of each lease contract, which gradually increases the excess spread available to cover defaults and losses.

Short lifetime exposure (positive). The portfolio of lease receivables exhibits a short remaining weighted average life of 2.9 years.

No set-off risk (positive). No borrowers have deposits or derivative contracts with Alba, the originator and seller.

Liquidity reserve (negative). The debt service reserve provides limited liquidity to support Class A coupon payments. Under the stressed assumptions of 1% servicer costs and a three-month Euribor at 2.5%, the reserve will only cover one payment period for Class A´s coupons. Scope however does not anticipate a rapid rise in interest rates over the expected life of Class A. The combined waterfall gives additional support to interest payments on the notes and senior costs because principal collections can be used to pay such items in the waterfall.

Alba is a relatively new lessor (negative). Relevant historical data only exists from 2010 when Alba started operations. Scope’s default rate volatility assumptions reflect this.

Unsecured recoveries (negative). There is no guarantee that Alba’s bankruptcy estate will include asset sale proceeds from defaulted lessees. Consequently, Scope relies on unsecured recoveries from obligors and guarantors.

Positive rating-change driver. Faster-than-expected portfolio amortisation may benefit the ratings if credit enhancement builds up before credit losses crystallise.

Negative rating-change driver. A higher-than-expected default rate or lower-than-expected recovery upon asset default could negatively impact the ratings.

Quantitative analysis and key assumptions

Scope applied its large homogenous portfolio approximation approach when analysing the highly granular collateral pool and projecting cash flows over its amortisation period. Scope analysed the transaction assuming four distinct asset segments for leases to mainly SMEs and smaller amounts to larger corporate borrowers and individual entrepreneurs for the purchase of i) transportation assets, ii) equipment, iii) real estate properties and iv) air, naval & rail asset.

For the segments transportation assets, equipment, real estate properties and air, naval & rail assets, Scope assumed point-in-time default rates of 3.0%, 5.0%, 11.0% and 6.5% and coefficients of variation of 77.5%, 65.0%, 75.0% and 130.0%. The respective segments’ base case recovery rates are 30.0%, 20.0%, 7.5% and 30.0%. On an aggregate portfolio basis, the point-in-time default rate is 5.6%, the coefficient of variation is 71.3% and the base case recovery rate is 17.1%.

Scope used default rate and recovery vintage from 2010 to 2017 for the four portfolio segments, which reflects the performance of the lease book originated by Alba since 2010. The observation period for lease receivables originated by Alba is relatively short at 6-7 years depending on the segment. However, the period includes the severe recession experienced in Italy during 2012-2014. Given the limited data available, we adjusted the coefficient of variation upwards for each segment by also taking into account vintage data available for receivables originated during 2004-2009.

Scope did not consider a long-term reference default distribution because the performance of Alba´s lease receivables exhibit improving performance over 2012-2014 and suggest improvement in origination that cannot be linked to the economic cycle.

Scope assumed an average recovery assumption of 17.1% for the portfolio. This assumption has been adjusted by rating conditional haircuts resulting in respective recovery assumptions of 10.3%, 13%, and 14.4% for the Class A, B and C notes. Recovery assumptions only consider unsecured recoveries from the lessees and guarantors.

Scope considered the assets’ amortisation characteristics and assumed a default timing reflecting a constant default intensity. Scope incorporated 50 bps margin and interest rate stresses in its cash flow analysis to address: i) lower excess spread via prepayments, amortisation and defaults; ii) flexibility available to the servicer to modify the lease; and iii) interest rate mismatches between assets and liabilities.

Rating sensitivity

Scope tested the resilience of the rating against deviations of the main input parameters: the portfolio mean default rate and the portfolio recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the quantitative results changes when the portfolio’s expected default rate is increased by 50% and the portfolio’s expected recovery rate is reduced by 50%, respectively:

• Class A1: sensitivity to probability of default, zero notches; sensitivity to recovery rates, zero notches.
• Class A2: sensitivity to probability of default, two notches; sensitivity to recovery rates, zero notches.
• Class B: sensitivity to probability of default, four notches; sensitivity to recovery rates, one notch.
• Class C: sensitivity to probability of default, three notches; sensitivity to recovery rates, zero notches.

Methodology

The methodologies applied for this rating were the General Structured Finance Methodology, dated August 2017, and the Auto ABS Rating Methodology, dated August 2017. Scope also applied the principles contained in the Methodology for Counterparty Risk in Structured Finance, dated August 2017. All documents are available on www.scoperatings.com.

Scope analysts are available to discuss all the details of the rating analysis and the risks to which this transaction is exposed.

Regulatory and legal disclosures

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr Stefan Bund.
The rating analysis has been prepared by Martin Hartmann, Lead Analyst. Guillaume Jolivet, Committee Chair, is the analyst responsible for approving the rating.

Rating history
The ratings were first assigned as preliminary ratings by Scope on 12.10.2017. The ratings were last updated as final ratings on 30.10.2017.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the issuer of the investment.
As of the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG nor any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, the rated entities’ agents, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Scope has not undertaken any assessment of agreed upon procedure reports carried out at the level of underlying financial instruments or other assets of structured finance instruments. Scope has relied on a third-party assessment and the use of such third-party assessment had a neutral impact on the credit ratings assigned.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodology applicable for the ratings is ‘General Structured Finance Rating Methodology’, dated August 2017, ‘Auto ABS Rating Methodology’, dated August 2017, and the ‘Methodology for Counterparty Risk in Structured Finance’, dated August 2017. All files are available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
© 2017 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings AG, Scope Analysis GmbH, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

Rating issued by Scope Ratings AG, Lennéstraße 5, 10785 Berlin.