RPT-Fitch Upgrades Agri Securities S.r.l. Series 2006's Notes to 'Asf'
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Aug 9 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has upgraded Agri Securities S.r.l. Series 2006's (Agri Securities 2006) EUR59.6m class B notes to 'Asf' from 'BBBsf'. The Outlook is Positive.
KEY RATING DRIVERS
The transaction closed in November 2006, ended its revolving period in May 2008 and has since then amortised to around 11% of the initial balance. The class A notes were redeemed in full in November 2012 when the class B notes began amortising. Credit enhancement (CE) for the class B notes has rapidly built up to a healthy 52.1% of the non-defaulted collateral. Together with the fast-paced amortisation of the notes in the past two quarters, this is the main driver of the upgrade.
The default performance has been worse than Fitch's expectations at closing and the quality of the outstanding collateral is still a concern as proved by the high total delinquency ratio, which reached its highest point on the last payment date at 11.2%. However, the cumulative default rate and cumulative loss rate curves have flattened around 8% and 5.5%, respectively, which compare well with the other less seasoned transactions from the same originator that Fitch rates. This is noteworthy, especially given that unlike the sibling transactions, the originator has never supported the transaction through repurchase of delinquent or defaulted receivables. Fitch has therefore revised its lifetime default base case to 8.5% from the original 3.6%. Fitch has also revised its recovery rate assumption to 30% from the original assumption of 46.5% to take into account the actual performance of the transaction, as cumulative recoveries have stabilised to around 30% of cumulative defaults in the past two years.
The level of gross excess spread generated by the portfolio has been high, albeit volatile, throughout the transaction's life, mainly thanks to the high yields of the pool. On only one occasion (Q412) was gross excess spread insufficient to cover provisioned losses of the period, thus leaving EUR1.2m of uncleared principal deficiency ledger (PDL), which was subsequently cleared on the next payment date.
Fitch believes that the increasing ratio between the average total collections and the notes' balance (8.6% as of May 2013) highlights the greater and increasing exposure to commingling risk in the tail of the transaction's life. However, the agency is of the opinion that the available CE sufficiently mitigates this risk.
In addition, Fitch considers that the available cash reserve, which is currently at its floor level of EUR5m, more than adequately mitigates the payment interruption risk and provides an additional source of CE in the tail of the transaction.
As the class B notes are now amortising and their CE is quickly building up, the transaction is resilient to highly stressful assumption on the future default rates of the current collateral portfolio. Even assuming a sudden spike in defaults and accounting for the increased commingling risk in the tail of the transaction's life, the available CE is sufficient to sustain a rating in the 'Asf' category
The Outlook is Positive as the build-up of the CE will make the tail risks run by the transaction less remote at every payment date from now till the class B notes are paid in full.
A multi-notch downgrade on the sovereign (Italy; BBB+/Negative/F2) might cause a downgrade of the notes, although the agency does not expect this is a likely scenario.
Agri Securities 2006 is a securitisation of performing leases on the following typologies of assets: real estate (76.3% as of May 2013, 52.8% at closing), equipment (19.2%, 34.8%), industrial vehicles (3.5%, 8.2%) and autos (1.0%, 4.2%).
Fitch reviewed this transaction out applying its Consumer ABS rating criteria in lieu of the SME CLO rating criteria due to the limited amount of available information (eg loan-by-loan internal ratings of the originator), and the fact that Fitch has observed multiple deals with similar assets and is comfortable that methodology is adequate.
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