Rating action

Class A1 (ISIN: IT0005285231), Fully repaid: withdrawn from AAA_SF

Class A2 (ISIN: IT0005285249), EUR 228.7m: affirmed at AAA_SF

Class B (ISIN: IT0005285256), EUR 145.8m: affirmed at A+_SF

Class C (ISIN: IT0005285264), EUR 100.2m: affirmed at BBB-_SF

Class J (ISIN: IT0005285272), EUR 164.3: not rated

The rating actions incorporate information available from transaction reports¹ and European DataWarehouse² data through 30 November 2019.

Transaction overview

The transaction is a true-sale securitisation of lease receivables originated by Alba Leasing S.p.A. (Alba) and mainly granted to Italian SMEs, as well as corporate borrowers and individual entrepreneurs.

The leases – currently EUR 569.2m (EUR 1,113.1m as of closing) – are used to finance the acquisition of transportation assets (21.4%), equipment (48.8%), real estate (28.0%) as well as air, naval and rail assets (1.8%). The assets’ residual value was not securitized.

The transaction closed in October 2017 and its final legal maturity is March 2038. The current monitoring used available deal reporting through the 30 November 2019 quarterly servicer report date.

Rating rationale

Class A1 notes were fully repaid on the 27 September 2019 payment date.

The rating actions are supported by solid asset performance since closing and increased credit enhancement. Delinquencies more than 90 days past due represent 0.03% of the outstanding non-defaulted assets. Cumulative observed defaults are 3.0% of the asset balance at closing. Increased credit enhancement has mainly been driven by transaction deleveraging.

Class A2 credit enhancement has increased to 64.8% from 36.9% at closing.

Class B credit enhancement has increased to 41.7% from 23.8% at closing.

Class C credit enhancement has increased to 25.8% from 14.8% at closing. Class C interest will be subordinated to class B principal if cumulative portfolio defaults reach 10.0% of the portfolio balance at closing.

The rated notes benefit from 0.6% excess spread (assuming 1.0% senior fees) and a liquidity reserve that has amortised to its floor of 0.5% of the rated notes at closing – down from 1.0%. An excess spread trapping mechanism, based on cumulative defaults, is in place to ensure sufficient collateralisation of the rated notes.

The originator/seller and servicer, Alba; and the account bank and paying agent, Citibank N.A., continues to support the ratings. We assessed the bank’s credit quality using public information.

Key rating drivers

Asset performance (positive). 90+ delinquencies account for 0.03% of the outstanding asset balance as of 30 November 2019. Cumulative defaults as a percentage of the portfolio balance at closing is 3.0%.

Increased credit enhancement (positive). Class A2 credit enhancement has increased to 64.8% from 36.9% at closing, while class B and C credit enhancement has increased to 41.7% and 25.8% from 23.8% and 14.8% respectively.

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. 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.

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

Macroeconomic uncertainties (negative). The transaction is exposed to macroeconomic uncertainties in Italy, especially when considering COVID-19. Geographically, central Italy accounts for 17.9% of the collateral pool, southern Italy accounts for 21.2% and the rest of Italy including northern Italy accounts for 61.4% of the collateral pool.

Interest subordination (negative). Class C interest will be subordinated to class B principal if cumulative portfolio defaults reach 10.0% of the portfolio balance at closing. High default scenarios may magnify expected losses and missed coupons to class C noteholders given this feature.

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

Rating-change drivers

Faster than expected portfolio amortisation (positive): This may benefit the rating if credit enhancement builds up before credit losses crystallise.

Worse than expected asset performance(negative): A severe deterioration of the Italian macroeconomic environment could lead to worse than expected asset performance and thus negatively impact the ratings.

Quantitative analysis and assumptions

Scope Ratings has performed a cash flow analysis, considering the portfolio's characteristics and the transaction's main structural features, such as the notes’ priorities of payments, note size, the coupon on the notes, senior costs, as well as servicing fees. This analysis produces an expected loss and expected weighted average life for the notes.

Scope applied its large homogenous portfolio approximation approach when analysing the collateral pool and projecting cash flows over the expected amortisation period. The cash flow analysis considers the probability distribution of the portfolio’s default rate using an inverse Gaussian distribution.

Scope analysed the transaction by considering the four portfolio segments with proportions reflecting 30 November 2019 servicer reports. Transportation assets account for 21.4%, equipment assets account for 48.8%, real estate assets account for 28.0% and the air, naval and rail segment account for the remaining 1.8% of the portfolio. Scope maintained its mean default rate, coefficient of variation and recovery rate assumptions from closing. These assumptions are:

Transportation segment: a mean default rate of 3.0%; a coefficient of variation of 77.5%; and AAA and B rating-conditional recovery rates of 18.0% and 30.0%, respectively.

Equipment segment: mean default rate of 5.0%, a coefficient of variation of 65.0%; and AAA and B rating-conditional recovery rates of 12.0% and 20.0%, respectively.

Real Estate segment: mean default rate of 11.0%, a coefficient of variation of 75.0%; and AAA and B rating-conditional recovery rates of 4.5% and 7.5%, respectively.

Air, Naval and Rail asset segment: mean default rate of 6.5%, a coefficient of variation of 130.0%; and AAA and B rating-conditional recovery rates of 18% and 30.0%, respectively.

Scope analysed the transaction under high (5%) and low (0%) prepayment scenarios.

Sensitivity analysis

Scope tested the resilience of the ratings against deviations in 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 ratings to input assumptions and is not indicative of expected or likely scenarios. The following shows how the quantitative results for each rated instrument change compared to the assigned rating when the portfolio’s expected default rate increases by 50%, or the portfolio’s expected recovery rate decreases by 50%, respectively:

• Class A2: sensitivity to default rate assumptions, 0 notches; sensitivity to recovery rates, 0 notches;
   
• Class B: sensitivity to default rate assumption, 0 notches; sensitivity to recovery rates, 0 notches;
   
• Class C: sensitivity to default rate assumption, 0 notches; sensitivity to recovery rates, 0 notches.

Rating driver references
1. Investor reports
2. European DataWarehouse

Stress testing
Stress testing was performed by applying rating-adjusted recovery rate assumptions.

Cash flow analysis
Scope performed a cash flow analysis of the transaction with the use of Scope Cash Flow SF EL Model Version 1.1 incorporating default and recovery rate assumptions over the portfolio’s amortisation period, taking into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

Methodology
The methodologies used for these ratings are the ‘SME ABS Rating Methodology’ dated 9 April 2019 and the ‘Methodology for Counterparty Risk in Structured Finance’ dated 24 July 2019, which are available on www.scoperatings.com.
The model used for this rating(s) and/or rating outlook(s) is in Scope’s list of models, published under: https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to 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 definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on www.Scoperatings.com/methodologies/ ESG factors in ratings.

Solicitation, key sources and quality of information
The rated instruments’ issuer and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entities’ agents 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 Ratings GmbH received a third-party asset audit at closing. The external asset audit was considered when preparing the ratings and it had no impact on the credit ratings.
Prior to the issuance of the rating actions, the rated entity was given the opportunity to review the ratings and the principal grounds on which the credit ratings are based. Following that review, the ratings were not amended before being issued.

Regulatory disclosures
These credit ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thomas Miller-Jones, Associate Director
Person responsible for approval of the rating: David Bergman, Managing Director
The final ratings were first released by Scope on 30 October 2017.

Potential conflicts*
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings. A member of the Board of Trustees of Scope Foundation has a significant relationship with Société Generale SA, a related third party to this transaction. The Scope Foundation is a 20% shareholder of Scope Management SE, the general manager of Scope SE & Co KGaA (“Scope Group”). Scope Foundation has no financial or economic interest in Scope SE & Co KGaA and the main function of the foundation is to preserve the European identity of the shareholder structure of Scope Group.
*Editor's note: This section was amended on 28 September 2021. On the publication date of 3 April 2020, this section originally stated: "Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings."

Conditions of use / exclusion of liability
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