Feb 11 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Maestrale 3 S.r.l.'s EUR98.3m class A notes at 'AA-sf', with Negative Outlook. Maestrale is a securitisation of leases to Italian SMEs originated and serviced by Commercio e Finanza S.p.A. Leasing e Factoring (CFLF), a subsidiary of Cassa di Risparmio di Ferrara S.p.A. (Carife), that includes different kinds of leased assets (equipment, real estate, autos and commercial vehicles). As of November 2013, leases to finance the purchase of real estate assets made up 44% of the pool whereas equipment, commercial vehicles and auto sub pools accounted for 39.4%, 14.6% and 2% of the portfolio, respectively.
KEY RATING DRIVERS
Significant Credit Enhancement (CE)
The affirmation reflects the significant and increasing CE available for the class A notes and the short time-frame expected for the full repayment of the class A notes. This offsets the deterioration of the portfolio's performance over the last two quarters. The Negative Outlook reflects the risk that further increases in delinquencies and defaults may result in a significant reduction of quarterly principal collections, leading to slower than expected deleveraging of the class A notes.
CE for the class A notes has increased to 69.3% (of which 1.8% is provided by the cash reserve) as at November 2013 from 52.1% at closing. The increase has been driven by the fully sequential amortisation of the notes, which started in August 2013, after the revolving period was early terminated.
Current CE adequately mitigates obligor concentration risk. As at November 2013, the top 35 and the top 20 obligor groups account for 27.2% and 19.1% of the collateral portfolio, respectively.
Repayment of Class A Notes
The transaction features a relatively small component of long-tenor lease contracts (real estate leasing represents just 44% of the portfolio) compared with the majority of other Italian lease transactions. Given the current level of quarterly principal collections (EUR22.9m over the last quarter) and the lower than average real estate leasing exposure in the portfolio, the class A notes are expected to be repaid in 12 to 18 months.
Sharp and Significant Performance Deterioration
There has been a sharp and significant increase in defaults and delinquencies since August 2013, when the revolving period was terminated early due to an uncured principal deficiency ledger (PDL). Until May 2013, there were no defaults and delinquencies were stable due to the originator supporting the deal via buy backs of delinquent loans, to avoid breaching the revolving termination triggers. At November 2013, the annualised gross default rate peaked at 26.1% and 30+ and 90+ arrears had reached 21.1% and 10.7%, respectively. Both period defaults and arrears are more than twice the levels of the previous quarter.
As at November 2013, the cumulative default and loss rate reached 5.9%, still below Fitch's base case expectation for defaults and losses at the same point of seasoning (13.4%). No recoveries have been received. Fitch has maintained its base case life-time expectation for defaults and recoveries at 22.6% and 4%, respectively.
Although Maestrale has benefited from healthy levels of gross excess spread to date, averaging 4% of the non-defaulted portfolio over the past year, the PDL was uncured on the last two payment dates. As a result, the unrated class B notes are uncollateralised by EUR22.2m (10.2% of class B notes).
Servicer Continuity and Payment Interruption Risk
CARIFE, the servicer's parent, was placed under the extraordinary administration of the Bank of Italy in May 2013. However, servicer continuity risk is mitigated by Selma Bipiemme Leasing acting as back-up servicer. Payment interruption is mitigated by the EUR5.1m cash reserve, available to cover interest shortfalls, held at the Bank of New York Mellon (AA-/Stable/F1+).
Since the end of the revolving period, the cash reserve has been amortising at its target (4.15% of the class A notes' balance) and the released amounts have been used to accelerate the class A notes' repayment.
No Residual Value Risk
There is no residual value risk in the transaction, as this component of the securitised financial lease contracts was not transferred to Maestrale.
The class A notes' rating is sensitive to a reduction in quarterly principal collections and to further increases in delinquencies and defaults above the already pronounced levels. If principal collections significantly decrease, resulting in slower than expected deleveraging of the notes, the class A notes could be downgraded to the 'Asf' rating category.
The review of this transaction was carried out applying a combination of Fitch's consumer ABS rating criteria and SME CLO rating criteria. This approach was needed due to the limited amount of available information (eg loan-by-loan, internal ratings of the originator).