The rating actions are as follows:

Class A1 (ISIN IT0005413205), EUR 498.7m: definitive rating AAA_SF

Class A2 (ISIN IT0005413239), EUR 300.0m: definitive rating AA_SF

Class B (ISIN IT0005413247), EUR 143.6m: definitive rating A_SF

Class C (ISIN IT0005413254), EUR 131.1m: definitive rating BB+_SF

Class J (ISIN IT0005413262), EUR 187.0m: not rated

Transaction overview

The transaction is a static true-sale cash securitisation of Italian lease receivables originated by Alba Leasing S.p.A. (Alba). The portfolio comprises leases mainly granted to Italian SMEs (77.3%), and smaller amounts to larger corporate borrowers (14.9%) and individual entrepreneurs (7.8%) used to finance transportation assets (20.2%), equipment (56.6%), real estate properties (22.3%) and air, naval & rail assets (1.0%). This transaction is not exposed to residual value risk because the assets’ residual value is not securitised.

The structure comprises five classes of notes with fully sequential principal amortisation: senior class A1 and A2, mezzanine class B and C, and junior class J. All the classes of notes will pay a floating rate, based on three-month Euribor, plus a margin (0.70% for class A1, 0.85% for class A2, 1.35% for class B, 1.85% for class C and 2.00% for class J). The sum of three-month Euribor and the relevant margin is floored at zero.

Rating rationale

The ratings reflect the notes’ protection against portfolio losses, provided by the quality of the underlying collateral and by the transactions legal and financial structure. The ratings are mainly driven by the securitised portfolio’s characteristics and its expected performance as well as the servicer’s abilities and incentives. Scope accounted for the current macro-economic scenario, taking a forward-looking view on the macro-economic developments.

Class A1 and A2 notes are protected by their senior position and benefit, respectively, from 60.0% and 36.0% of credit enhancement from subordination. Class B and class C notes benefit, respectively, from 24.5% and 14.0% of credit enhancement. Furthermore, a debt service reserve provides liquidity support to all rated notes.

The ratings also reflect: i) the subordination of class C interest payments to class B principal if cumulative portfolio defaults exceed 12.5% of the portfolio’s initial notional, and ii) the subordination of class B interest payments to class A principal if cumulative portfolio defaults exceed 35.0%. All rated notes benefit from a mechanism linked to cumulative portfolio defaults, which traps excess spread to ensure sufficient collateralisation.

The ratings address exposures to the key transaction counterparties. In order to assess the issuer’s exposure to credit counterparty risks Scope considered counterparty substitution provisions in the transaction, counterparty ratings from Scope, when available, or public ratings.

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.^1,2

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.²

No residual value risk (positive). Investors are not exposed to the risk that obligors do not exercise the residual option, or 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.^1,2

Short lifetime exposure (positive). The portfolio of lease receivables has a relatively short remaining weighted average life of 3.2 years.¹

No set-off risk (positive). No borrowers have any deposits or derivative contracts with Alba.^1,2

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 around four months of interest for Class A notes. However, Scope 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.²

Unsecured recoveries (negative). Scope has relied 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.³

Claw-back risk (negative). Claw-back risk related to repurchased receivables is high compared to peer transaction rated by Scope as the originator is entitled to buy back up to 17% of the portfolio on cumulative basis and 2% on quarterly basis.²

Rating-change drivers

Positive. Better-than-expected performance of the assets, as well as faster-than-expected portfolio amortisation if credit enhancement builds up before credit losses crystallise, may positively impact the ratings.

Negative. Worse-than-expected performance of the assets as well as a deterioration of the Italian macroeconomic environment could negatively impact the ratings.

Quantitative analysis and key assumptions

Scope has performed a cash flow analysis considering the portfolio characteristics and the main structural features. Scope applied its large homogenous portfolio approximation approach when analysing the highly granular collateral pool and projecting cash flows over its amortisation period. The cash flow analysis considers the probability distribution of portfolio’s default rate, following an inverse Gaussian distribution, to calculate the expected loss of each rated tranche. The analysis also provides the expected weighted average life of each tranche. Scope has taken into account asset and liability amortisation and the evolution in the pool’s composition.

Scope analysed the transaction assuming three distinct asset segments: i) Transport & Air, Naval and Rail; ii) Equipment; and iii) Real Estate. The original pool included four portfolio segments: Transport, Equipment, Real Estate and Air, Naval & Rail. Scope adjusted the composition of the portfolio by grouping together the Transport segment with the Air, Naval & Rail segment.

For the three segments i) Transport & Air, Naval and Rail, ii) Equipment and iii) Real Estate, Scope assumed, respectively, mean default rates of 4%, 5% and 9% and coefficients of variation of 75%, 70% and 90%. The respective segments’ base case recovery rates are 30%, 30%, and 10%. On an aggregate portfolio basis, the mean default rate is 5.7%, the coefficient of variation is 77.8% and the base case recovery rate is 22.8%.

Scope calibrated its assumptions on default rates and coefficients of variation using 2010-2019 vintage data for each portfolio segment, which reflects the performance of the lease book originated by Alba.

Scope considered the 2010-2019 vintage data period to be sufficiently long to cover more than one full economic cycle, as it includes the severe recessions which Italy suffered during 2012-2014. However, Scope adjusted the coefficients of variation upwards in order to capture Scope’s forward-looking view in relation to the Covid-19 outbreak in Italy⁴.

Scope assumed an average recovery of 22.8% for the portfolio. This assumption was adjusted with rating-conditional haircuts resulting in average recovery assumptions of 13.7%, 15.5%, 17.3% and 21.0% for the Class A1, A2, B and C notes analysis, respectively. 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 around 75 bps margin and interest rate stresses in its cash flow analysis in order 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. In addition, Scope reduce the portfolio balance by 2.4% in order to account for potential commingling (0.4% reduction) and claw-back (2% reduction) losses.

Sensitivity analysis

Scope tested the resilience of the ratings against deviations of the main input parameters: the portfolio’s 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 change when the portfolio’s expected mean default rate is increased by 50% and the portfolio’s expected recovery rate is reduced by 50%, respectively:

• Class A1: sensitivity to default rate, zero notches; sensitivity to recovery rate, zero notches.
   
• Class A2: sensitivity to default rate, minus two notches; sensitivity to recovery rate, zero notches.
   
• Class B: sensitivity to default rate, minus four notches; sensitivity to recovery rate, minus one notch.
   
• Class C: sensitivity to default rate, minus two notches; sensitivity to recovery rate, zero notches.

Rating driver references
1. Loan-by-loan data tape of the securitised pool (confidential)
2. Transaction documents (confidential)
3. Originator’s vintage data (confidential)
4. Scope revises the Outlook on Italy’s BBB+ long-term ratings to Negative

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 this rating are the SME ABS Rating Methodology (26 May 2020), the Consumer and Auto ABS Rating Methodology (4 March 2020) and the Methodology for Counterparty Risk in Structured Finance (24 July 2019), available on https://www.scoperatings.com/#!methodology/list.
The model used for this rating is Cash Flow Model v1.1. is available 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 https://www.scoperatings.com/#!methodology/list.
Scope analysts are available to discuss all the details of the rating analysis and the risks to which this transaction is exposed.

Solicitation, key sources and quality of information
The rated entity and its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, agents of the issuer, 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 rating 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 has received a third-party asset due diligence assessment. The external due diligence assessment was considered when preparing the rating and it has no impact on the credit rating. Prior to the issuance of the rating, the rated entity was given the opportunity to review the rating and the principal grounds on which the credit rating is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Leonardo Scavo, Analyst.
Person responsible for approval of the ratings: David Bergman, Managing Director.
The rating was first released by Scope on 25 June 2020.

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 25 June 2020, the 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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