Rating action

The transaction comprises the following instruments:

• Class A2 (ISIN IT0005413239); EUR 2,070,690 outstanding; affirmed at AAA_SF
   
• Class B (ISIN IT0005413247); EUR 143,600,000 outstanding; upgraded to AAA_SF from A+_SF
   
• Class C (ISIN IT0005413254); EUR 131,100,000; upgraded to AA_SF from A-_SF
   
• Class J (ISIN IT0005413262); 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 2023), the underlying portfolio of assets has an expected remaining weighted average life (assuming zero defaults and prepayments) of approximately 2.1 years, and the pool factor stands at 0.37. Credit enhancement has evolved as follows since closing: with regards to the class A2 notes, increased to 101.2%, from 37%; with regards to the class B notes, increased to 69.8%, from 25.5%; with regards to the class C notes, increased to 41.2%, from 15%.

The amortising reserve fund is at 100% of its target level, equivalent to its floor of 0.5% of the initial size of the rated notes. This represents currently 1.94% of the outstanding size 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) equalled 2.46%.

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 a) the observed performance of the collateral as of the review cut-off date, b) Scope´s forward-looking performance assumptions, in the context of the expected macro-economic environment over the remaining life of the transaction, c) the transaction´s updated asset and liability structure, and d) the issuer´s exposure to key transaction parties.

Following we summarize our main analytical conclusions:

Observed collateral performance^2,3: Overall, the portfolio has performed better than expected by Scope at closing. The following key metrics, as of the reporting cut-off date, reflect the overall portfolio performance: Cumulative default rate: 2.63%; 90 days-past-due dynamic delinquency rate: 0.12%; observed to date recovery rate on defaulted exposures: 24%; cumulative prepayment rate: 2.9%.

Expected collateral performance: Portfolio remaining lifetime default rates are approximated through an inverse Gaussian distribution. We have adjusted the mean parameter of the distribution to 3.6% from 5.7% at closing. This update reflects the positive portfolio performance to date, and a moderate macro-economic growth outlook¹. We have adjusted the coefficient of variation parameter distribution to 124.1% from 77.8% at closing to account for the lower mean base. Other asset assumptions, such as recovery rates and prepayments, remain unchanged.

Notes amortisation²: The updated capital structure is neutral for the class A2 notes rating and positive for the class B and C notes rating. The realised deleveraging of the capital structure reflects the sequential amortisation of the notes, in accordance with the rules of the transaction´s waterfall.

Available excess spread: Realised cumulative defaults since closing have been fully provisioned for with available excess spread. As the portfolio balance exceeds the outstanding rated notes, the impact from increased Euribor weighs positively on outstanding rated notes available excess spread. However, available excess spread could decrease going forward, for instance from higher servicing fees upon a servicer termination event, increased delinquencies or from the concentration of prepayments or defaults in the higher yielding portfolio buckets.

Liquidity protection²: Available liquidity supports the ratings of the notes, in accordance with Scope’s General Structured Finance Methodology. The current size of the reserve fund provides ample liquidity protection assuming current interest rate conditions.

Interest rate risk³: The structure is to a large extent naturally hedged against risk arising from differences between the rates payable on the assets and the rates payable on the liabilities as around 96% of receivables are linked to 3-month Euribor, the same reference as for the notes. 3.8% of the assets pay a fixed rate, while the remainder of the liabilities pay a variable rate referencing 1-month Euribor. Our analysis embeds rating-conditional interest rate stresses, which we have updated, considering current and expected market conditions. The impact is credit neutral for the class A2, B and C notes.

Counterparty risk: The key transaction counterparties continue to support the ratings. No rating-change drivers related to counterparty risks have taken place since our last rating action.

Key rating drivers

The key rating drivers continue to be aligned with those disclosed on our rating action release dated 10 March 2023, with the following exceptions:

• Liquidity reserve: Liquidity support regarding class A coupon payments is no longer a concern as class A2 will be redeemed in brief time. Liquidity support regarding the outstanding classes B and C is in accordance with Scope’s General Structured Finance Methodology. In addition, the support is going to increase further as the reserve fund has reached its floor and is no longer amortising.

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 forward looking performance assumptions.
   
• Material changes in Scope´s forward-looking macro-economic and/or interest rate outlook.

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

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

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

• Rating downgrade of a transaction´s key counterparty beyond a level which would cease to be compliant with Scope´s Counterparty Methodology.
   
• A depletion of the reserve fund beyond a level commensurate with the then current rating of the notes, 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 securitized portfolio amortization schedule and on committee-agreed upon 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 December 2023 servicer reports, transportation assets account for 14.2%, equipment assets account for 44.7% and real estate assets account for 41.1% 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 1.47% and a coefficient of variation of 154.3%; 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 1.93% and a coefficient of variation of 138.5%; 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 6.21% and a coefficient of variation of 117.4%; 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, respectively. Scope considered stressed senior fees of 1% and a fixed weighted average portfolio yield compression of 0.5%; and rating-conditional interest vectors, which are subject to the base rate payable of on the notes, and which range from up to 3.2% - 4.5%, under a B scenario, to up to -1% - 9% under a AAA scenario.

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.

• A 50% increase in the mean default rate assumption has a zero-notch quantitative impact on the class A2 notes, a zero-notch quantitative impact on the class B notes and a three notches quantitative impact on the class C notes.
   
• A 50% decrease in Scope´s rating-conditional recovery rate assumptions has a zero-notch quantitative impact on the class A2 notes, a zero-notch quantitative impact on the class B notes and a one notch quantitative impact on the class C notes.

Rating driver references
1. Scope Sovereign outlook 2024 
2. Investor reports (Confidential)
3. Servicer 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 Structured Finance Expected Loss Model Version 1.2 incorporating relevant asset assumptions and taking into account the transaction’s main structural features, such as the instruments’ priority of payments, the instruments’ size and coupons. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodologies used for these Credit Ratings, (SME ABS Rating Methodology, 16 May 2023; General Structured Finance Rating Methodology, 25 January 2023; Counterparty Risk Methodology, 13 July 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Cash Flow Structured Finance Expected Loss Model Version 1.2), 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, Managing Director
The Credit Ratings were first released by Scope Ratings on 25 June 2020. The Credit Ratings were last updated on 10 March 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures 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
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis 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.