Rating action

The transaction comprises the following instruments:

Class A2 (ISIN: IT0005352684), EUR 0m: withdrawn

Class B (ISIN: IT0005352692), EUR 85.7m: affirmed at AAA_SF

Class C (ISIN: IT0005352700), EUR 75.0m: upgrade to AAA_SF from A_-SF

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

The rating actions incorporate information available from transaction reports data through 30 September 2022.

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 302.0m (EUR 950.7m as of closing) – are used to finance the acquisition of transportation assets (13.1%), equipment (45.1%), real estate (41.1%) as well as air, naval and rail assets (0.7%). 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 30 September 2022 quarterly servicer report date.

Rating rationale

Class A2 was redeemed in full in October 2022. The rating actions on class B and C are mainly driven by a very substantial increase in credit enhancement, to 73% and 48.2% from 23% and 15.2%¹, respectively, as the transaction deleveraged. The performance of the transaction is better than Scope’s projections as of closing. Delinquencies more than 90 days past due represent 0.04% of the outstanding non-defaulted assets. Cumulative observed defaults are 3.4% of the asset balance at closing.

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

The key rating drivers continue to be aligned with those disclosed in our rating action release dated 14 February 2022.

Rating-change drivers

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 used a cash flow model to analyse the transaction and applied a statistical distribution of defaults when modelling the granular collateral pool. Scope assumed that portfolio defaults followed an inverse Gaussian distribution when calculating the expected loss of the rated tranches. The analysis also provided the expected weighted average life of each tranche. Scope considered asset and liability amortisation.

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 30 September 2022 servicer reports, transportation assets account for 13.8%, equipment assets account for 45.1% and real estate assets account for 41.1% of the portfolio. Scope adjusted the mean default rate, coefficient of variation and recovery rate assumptions from closing for the remaining portfolio. These assumptions are:

Transportation& Air, Naval and Rail segment: a mean default rate of 1.3%; a coefficient of variation of 161.8%; and AAA and B rating-conditional recovery rates of 18.0% and 30.0%, respectively.

Equipment segment: mean default rate of 1.8%, a coefficient of variation of 124.9%; and AAA and B rating-conditional recovery rates of 12.0% and 20.0%, respectively.

Real Estate segment: mean default rate of 7.6%, a coefficient of variation of 114.9%; 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 B: sensitivity to default rate assumption, zero notches; sensitivity to recovery rates, zero notches.
   
• Class C: sensitivity to default rate assumption, zero notches; sensitivity to recovery rates, zero notches.

Rating driver references
1. Investor Reports

Stress testing
Stress testing was considered in the quantitative analysis by considering scenarios that stress factors, like defaults and Credit-Rating-adjusted recoveries, contributing to sensitivity of Credit Ratings and consider the likelihood of severe collateral losses or impaired cash flows. The impact on the rated instruments is weighted by the assumptions of the likelihood of the events in such scenarios occurring.

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, 16 May 2022; General Structured Finance Rating Methodology, 17 December 2021; Counterparty Risk Methodology, 14 July 2022) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.

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 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: Antonio Casado, Executive Director
The final Credit Ratings were first released by Scope Ratings on 29 November 2018. The Credit Ratings were last updated on 14 February 2022.

Potential conflicts
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.
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.

Conditions of use / exclusion of liability
© 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund 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.