Rating action

The transaction comprises the following instruments:

Class A2 (ISIN: IT0005285249), EUR 0m: withdrawn

Class B (ISIN: IT0005285256), EUR 24.2m: affirmed at AAA_SF

Class C (ISIN: IT0005285264), EUR 100.2m: upgrade to AA+_SF from A+_SF

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

The rating actions incorporate information available from transaction reports³ and European DataWarehouse⁴ data through 30 November 2021.

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 283.9m (EUR 1,113.1m as of closing) – are used to finance the acquisition of transportation assets (13.5%), equipment (37.6%), real estate (46.7%) as well as air, naval and rail assets (2.3%). 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 2021 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 is better than Scope’s projections as of closing, however, to a large extent driven by lessees being in moratorium according to the Law Decree "Cura Italia" under which lessees are not accounted as non-payers. Delinquencies more than 90 days past due represent 0.03% of the outstanding non-defaulted assets, well below the peak of 2% reported in the August 2020 servicer report and in line compared to the reported 0.03% two years ago. The decrease from 2020’s peak in delinquencies is explained by the large portion of the pool being still in moratorium. As of November 2021, around 26% of the outstanding portfolio balance still benefits from the payment moratorium extended to December 2021. Cumulative observed defaults are 3.7% of the asset balance at closing.

Class B credit enhancement has increased to 93.2% from 23.8% at closing.

Class C credit enhancement has increased to 57.9% 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 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., continue to support the ratings. We assessed the bank’s credit quality using public information.

Key rating drivers

Increased credit enhancement (positive). Class B credit enhancement has increased to 93.2% from 23.8% at closing, while class C credit enhancement has increased to 57.9% from 14.8%.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 new variants of Covid-19, elevated inflation and withdrawal of fiscal and monetary support which present risks for robustness of the recovery.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 by considering the four portfolio segments with proportions reflecting 30 November 2021 servicer reports. Transportation assets account for 13.5%, equipment assets account for 37.6%, real estate assets account for 46.7% and the air, naval and rail segment account for the remaining 2.3% 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 of the portfolio based on COVID-19 related principal payment holidays and the one-month remaining 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 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 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 B: sensitivity to default rate assumption, zero notches; sensitivity to recovery rates, zero notches.
   
• Class C: sensitivity to default rate assumption, minus three notches; sensitivity to recovery rates, zero notches.

Rating driver references
1. Loan-by-loan data tape of the securitised pool (confidential)
2. Transaction documents (confidential)
3. Investor reports 
4. European Data Warehouse 
5. Scope’s 2022 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 the relevant asset assumptions, 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’, 17 May 2021; ‘General Structured Finance Rating Methodology’, 17 December 2021; ‘Methodology for Counterparty Risk in Structured Finance’, 13 July 2021), are available on https://www.scoperatings.com/#!methodology/list.
The model used for these Credit Ratings is (Cash Flow SF EL Model Version 1.1.), available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
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-EU. 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/or 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, 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.
Scope Ratings has received a third-party asset due diligence assessment/asset audit at closing. 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 Rating was first released by Scope Ratings on 30 October 2017. The Credit Ratings were last updated on 22 March 2021.

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 25 January 2022. On the original publication, this section 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
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