Rating action

Scope Ratings GmbH (Scope) has performed the following rating actions:

• Class A1 (ISIN IT0005413205), EUR 0m outstanding: withdrawn
   
• Class A2 (ISIN IT0005413239), EUR 240.4m outstanding: affirmed at AAA_SF
   
• Class B (ISIN IT0005413247), EUR 143.6 outstanding: affirmed at A+_SF
   
• Class C (ISIN IT0005413254), EUR 131.1m outstanding: upgraded to A-_SF from BBB_SF
   
• Class J (ISIN IT0005413262), EUR 187m outstanding: not rated

Transaction overview

The transaction is an Italian lease receivables securitisation issued in June 2020. A detailed description of the transaction features and analytical assumptions, at closing, can be found in the transaction´s rating report, available at Scope´s website.

As of the reporting cut-off date (December 2022), the underlying portfolio of assets has an expected remaining weighted average life (assuming zero defaults and prepayments) of approximately 2.2 years, and the pool factor stands at 55.7%. Credit enhancement with regards to the class A2, B and C notes has increased to respectively 66.4%, 45.7% and 26.8% from 37%, 25.5% and 15% at closing.

The amortising reserve fund is at its target level, equivalent to 1.16% of the outstanding principal of the rated notes.

During the latest interest payment date, gross excess spread (measured as the realized portfolio yield minus the weighted average cost of the rated notes, annualized) equaled around 2%.

The issuer remains primarily exposed to the following counterparties: Alba Leasing S.p.A. as originator and servicer, Intesa San Paolo as servicer account bank, Citibank N.A. Milan Branch as account bank, Citibank N.A. London Branch as paying agent Securitisation Services S.p.A. as back-up servicer and calculation agent and Stichting Moorgate as quota holder.

Rating rationale

The review addressed i) the observed performance of the collateral as of the review cut-off date; ii) Scope’s forward-looking performance assumptions in the context of the expected macro-economic environment over the transaction’s remaining life; iii) the transaction’s updated asset and liability structure; and iv) the issuer’s exposure to key transaction parties.

Scope’s main analytical conclusions are:

Collateral performance¹. Overall, the portfolio has performed better than Scope’s expectations at closing. The following key metrics as of the reporting cut-off date reflect the good overall portfolio performance: cumulative default rate: 2.10%; 90 days-past-due dynamic delinquency rate: 0.01%; observed to date recovery rate on defaulted exposures 12.4%; cumulative prepayment rate: 2.2%. We adjusted our portfolio lifetime mean default assumption to 4.2% from 5.7% at closing, reflecting both on realised defaults to date as well as our forward-looking economic views.

Notes amortisation¹. The realised deleveraging of the capital structure reflects the sequential notes’ amortisation in accordance with the transaction waterfall and is the main driving factor of the class C upgrade.

Liquidity protection¹. Available liquidity continues to support the ratings, in accordance with Scope’s General Structured Finance Methodology, but liquidity coverage on class B is insufficient to support a higher rating. Under our stressed interest rate assumptions, the current size of the reserve fund would be only sufficient to cover for less than a quarter of scheduled interest payments.

Excess spread. The transaction continues benefiting from excess spread as portfolio yield exceeds the interest on the rated notes and cumulative defaults since closing have been fully provisioned for.

Interest rate risk. The structure has a natural hedge with most assets and liabilities linked to matched floating rates due to which the risk is limited. Our analysis embeds interest rate stresses, which are credit neutral for the rated notes.

Key rating drivers

The key rating drivers continue to be aligned with those disclosed on our rating action release dated 25 June 2020 except for “claw-back risk on potentially repurchased receivables”. The originator has the option to repurchase up to 17% of receivables in accordance with the terms and conditions of the transaction. Over time, and particularly after the expiry of Italian moratorium programs in 2021, the risk of these repurchases has substantially decreased.

Key rating-change drivers

All else equal, the following factors may constitute upside or downside rating drivers:

• A material deviation of observed transaction performance from Scope’s current performance assumptions, or
   
• A material change in Scope’s forward-looking macro-economic outlook.

All else equal, the following factors may constitute upside rating drivers:

• Continued deleveraging of the capital structure and a reduction of the transaction’s risk horizon.

All else equal, the following factors may constitute downside rating drivers:

• A rating downgrade of a key counterparty beyond a level compliant with Scope’s Counterparty Risk Methodology, or
   
• A depletion of the reserve fund beyond a level commensurate with the then-current rating of the notes (causing reduction of liquidity support) in accordance with Scope’s General Structured Finance Methodology.

Quantitative analysis and assumptions

Scope used a proprietary cash flow model to calculate the expected loss and expected weighted average life of each rated tranche, considering the transaction’s assets and liability structure. Asset cash flows are projected based on the securitised portfolio amortisation schedule and on committee-determined performance assumptions, which reflect the characteristics and quality of the portfolio. The model replicates the transaction’s key structural features, including the capital structure, the order of priority of the issuer’s liabilities, and enhancement features such as excess spread and cash reserves.

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 27 December 2022 servicer reports, transportation assets account for 17.6%, equipment assets account for 51.5% and real estate assets account for 31% of the portfolio.

The key analytical assumptions for the three different segments of the transaction include the following:

Transportation& Air, Naval and Rail segment: an inverse-Gaussian distribution of portfolio remaining lifetime defaults, with a mean of 1.9% and a coefficient of variation of 125.35%; rating-conditional recovery rates ranging from 30% under a B scenario to 18% under a AAA scenario;

Equipment segment: an inverse-Gaussian distribution of portfolio remaining lifetime defaults, with a mean of 2.5% and a coefficient of variation of 114.5%; rating-conditional recovery rates ranging from 30% under a B scenario to 18% under a AAA scenario;

Real Estate segment: an inverse-Gaussian distribution of portfolio remaining lifetime defaults, with a mean of 6.9% and a coefficient of variation of 108.6%; rating-conditional recovery rates ranging from 10% under a B scenario to 6% under a AAA scenario;

For the above segments high and low constant prepayment rate scenarios of 5.0% and 0% were tested. Scope considered stressed senior fees of 1% and incorporated margin and interest rate stresses of 0.5% to address: i) lower excess spread via prepayments, amortisation and defaults; ii) flexibility available to the servicer to modify the leases; and iii) interest rate mismatches between assets and liabilities.

Sensitivity analysis

Scope tested the resilience of the credit rating 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 rating 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 A2: sensitivity to default rate assumption, zero notches; sensitivity to recovery rates, zero notches.
   
• Class B: sensitivity to default rate assumption, zero notches; sensitivity to recovery rates, zero notches.

• Class C: sensitivity to default rate assumption, minus two notches; sensitivity to recovery rates, minus one notch.

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 Rating’s 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 instruments based on the generated cash flows.

Methodology
The methodologies used for these Credit Ratings, (General Structured Finance Rating Methodology, 25 January 2023; Counterparty Risk Methodology, 14 July 2022; SME ABS Rating Methodology, 16 May 2022), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings are (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 Credit Ratings were first released by Scope Ratings on 25 June 2020. The Credit Ratings were last updated on 14 April 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
© 2023 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.