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%,
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).