Rating action

Class A1 (ISIN: IT0005352676), EUR 32.4m: affirmed at AAA_SF

Class A2 (ISIN: IT0005352684), EUR 200.0m: affirmed at AAA_SF

Class B (ISIN: IT0005352692), EUR 130.0m: upgrade to AA-_SF from A+_SF

Class C (ISIN: IT0005352700), EUR 75.0m: upgrade to BBB+_SF from BBB-_SF

Class J (ISIN: IT0005352718), EUR 145.4: not rated

The rating actions incorporate information available from transaction reports³ and European DataWarehouse⁴ data through 31 December 2020.

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 578.3m (EUR 950.7m as of closing) – are used to finance the acquisition of transportation assets (18.6%), equipment (54%), real estate (26.1%) as well as air, naval and rail assets (1.3%). The assets’ residual value was not securitized.

The transaction closed in November 2018 and its final legal maturity is October 2038. The current monitoring used available deal reporting through the 31 December 2020 quarterly servicer report date.

Rating rationale

The rating actions are supported by increased credit enhancement which has mainly been driven by transaction deleveraging. The performance of the transaction deteriorated since last rating action in March 2019. Delinquencies more than 90 days past due represent 0.05% of the outstanding non-defaulted assets with a peak at 1.3% reported in the September 2020 servicer report compared to 0.05% a year ago. The decrease from September’s peak in delinquencies is explained by the significant portion of the pool currently in moratorium according to the Law Decree "Cura Italia" under which lessees are not accounted as non-payers. As of December 2020, around 33.1% of the initial portfolio balance benefits or has benefitted from a payment moratorium. Around 50% of the outstanding balance benefit from a payment moratorium with a run-out scheduled after the December cut-off date. Cumulative observed defaults are 2.5% of the asset balance at closing.

Class A1 credit enhancement has increased to 95.2% from 57.9% at closing.

Class A2 credit enhancement has increased to 60.6% from 36.9% at closing.

Class B credit enhancement has increased to 38.1% from 23.2% at closing.

Class C credit enhancement has increased to 25.2% from 15.3% 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 0.3% excess spread (assuming 1.0% senior fees) and a liquidity reserve of 1% of the rated notes. 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., continue to support the ratings. We assessed the bank’s credit quality using public information.

Key rating drivers

Increased credit enhancement (positive). Class A1 credit enhancement has increased to 95.2% from 57.9% at closing, while class A2, class B and C credit enhancement has increased to 60.6%, 38.1% and 25.2% from 36.9%, 23.2% and 15.3% respectively.³

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, 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.^1,2

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

Macroeconomic uncertainties (negative). The transaction is exposed to macroeconomic uncertainties in Italy, especially when considering COVID-19 and the general economic slowdown in Europe, which Scope expects to result in rising unemployment and decreasing household income.⁵

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.²

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.⁶

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 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. Taking into account proportions reflecting 31 December 2020 servicer reports, transportation assets account for 19.9%, equipment assets account for 54.0% and real estate assets account for 26.1% of the portfolio. Scope performed additional analysis and adjustments to expected performance due to the coronavirus related payment moratorium. For this transaction, Scope adjusted the expected amortisation and yield of the portfolio based on COVID-19 related payment holidays and expected duration of the moratorium. In addition, Scope adjusted the default timing in anticipation of arising delinquencies and defaults after the end of the moratorium. Scope maintained its mean default rate, coefficient of variation and recovery rate assumptions from closing for the remaining portfolio, which results in an increased lifetime default rate of the portfolio. These assumptions are:

Transportation& Air, Naval and Rail segment: a mean default rate of 4.0%; a coefficient of variation of 70.0 %; 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 60.0%; and AAA and B rating-conditional recovery rates of 12.0% and 20.0%, respectively.

Real Estate segment: mean default rate of 11.5%, a coefficient of variation of 85.0%; and AAA and B rating-conditional recovery rates of 4.5% and 7.5%, respectively.

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

Sensitivity analysis

Scope tested the resilience of the ratings 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 ratings to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the results for each rated tranche change compared to the assigned ratings when the assumed mean default rate increases by 50%, or the portfolio’s expected recovery rate decreases by 50%, respectively:

• Class A1: sensitivity to default rate assumption, zero notches; sensitivity to recovery rates, zero notches.
   
• Class A2: sensitivity to default rate assumption, zero notches; sensitivity to recovery rates, zero notches.
   
• Class B: sensitivity to default rate assumption, three notches; sensitivity to recovery rates, zero notches.
   
• Class C sensitivity to default rate assumption, three notches; sensitivity to recovery rates, one notch.

Rating driver references
1. Loan-by-loan data tape of the securitised pool (confidential)
2. Transaction documents (confidential)
3. Investor reports 
4. European DataWarehouse 
5. Scope’s 2021 Sovereign Outlook 
6. Originator’s vintage data (confidential)

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

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ 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 Credit Ratings, (SME ABS Rating Methodology, 26 May 2020, General Structured Finance Rating Methodology, 14 December 2020; Methodology for Counterparty Risk in Structured Finance, 8 July 2020) are available on https://www.scoperatings.com/#!methodology/list.
The model used for these Credit Ratings are Scope Cash Flow SF/EL Model Version 1.1. available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Ratings’ definitions of default and Credit 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 factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.

Solicitation, key sources and quality of information
The Rated Entity and its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, the Rated Entities’ Related Third Parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
At closing, Scope Ratings has received a third-party asset due diligence assessment/asset audit. The external due diligence assessment/asset audit/internal analysis was considered when preparing the Credit Ratings and it has no impact on the Credit Ratings.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit 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. The Credit Ratings are UK-endorsed.
Lead analyst: Martin Hartmann, Associate Director
Person responsible for approval of the Credit Ratings: David Bergman, Managing Director
The Credit Ratings were first released by Scope Ratings on 29 November 2018.

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 22 March 2021, the section originally stated: "See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings."

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis 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 does not, 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 other 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 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 GmbH at Lennéstraße 5 D-10785 Berlin.