OREANDA-NEWS. Fitch Ratings has assigned Consumer Three S.r.l.'s fixed-rate notes ratings as follows:

EUR3,015m Class A, due December 2040: 'Asf'; Outlook Stable
EUR1,062.4m Class J, due December 2040: not rated

Consumer Three S.r.l. is a 24-month revolving securitisation of fixed-rate personal loans originated by UniCredit S.p.A. (UC; BBB+/Negative/F2), Italy's largest lender. The securitised assets are unsecured consumer loans advanced to individuals on their bank accounts for a variety of uses.

KEY RATING DRIVERS
Only Personal Loans Securitised
The securitised pool contains personal loans with a variety of features and no special purpose. These loans typically have higher default rates than other consumer loan products in the Italian market (e.g. auto loans). Fitch has determined a weighted average (WA) lifetime loss rate of 8.3%, which results from a WA base case default rate of 9.2% and limited expected recoveries of 10%.

Mostly "Debt Consolidation" Loans
More than half of the initial pool (55.9%) comprises loans granted under the 'Compact' product label. This product is extended for "debt consolidation" purposes and has larger historical loss rates than other personal loan products sold by the bank. The transaction has a portfolio limit on this product of 65% of the outstanding balance during the revolving period.

High Excess Spread
The transaction benefits from an initial high excess spread determined by a WA interest rate of 9.3% (before defaults) earned on the securitised assets, which compares with a fixed rate of 1.7% paid on the senior notes.

Revolving Period Adds Risk
The transaction features a 24-month revolving period subject to certain early termination events, concentration limits and eligibility criteria for the additional loans that can be transferred to the issuer quarterly. Fitch believes the mechanisms in place reduce the risk of material deterioration of asset performance. Fitch has assumed that during the revolving period the portfolio sub-product composition will migrate to the worst case possible under the transaction's revolving covenants.

Counterparty Risk a Constraint
According to the transaction documents, the issuer's account banks as well as the issuer's investments must carry a minimum rating of 'BBB' and 'F2', which is commensurate with a maximum rating of the class A notes at 'Asf'.

RATING SENSITIVITIES
The eligibility thresholds of 'BBB' and 'F2' for the issuer's account banks and issuer's investments are commensurate with a 'Asf' rating, as per Fitch's Exposure Draft on Counterparty Criteria for Structured Finance and Covered Bonds. Fitch has based its analysis assuming the exposure draft will be adopted in materially similar terms as released. Should the exposure draft not be adopted in such terms, the maximum achievable rating on the senior notes would be 'BBB+sf'.

Rating sensitivity to increased default rate assumptions
Current rating: 'Asf'
Increase in default rate by 10%: 'A-sf'
Increase in default rate by 25%: 'BBB+sf'
Increase in default rate by 50%: 'BBB-sf'

Rating sensitivity to reduced recovery rate assumptions
Current rating: 'Asf'
Decrease in recovery rate by 50%: 'Asf'

Rating sensitivity to multiple factors
Current rating: 'Asf'
Increase in default rate by 10%, decrease in recovery rate by 10%: 'A-sf'
Increase in default rate by 25%, decrease in recovery rate by 25%: 'BBB+sf'
Increase in default rate by 50%, decrease in recovery rate by 50%: 'BBB-sf'

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated errors related to the original loan amount, the grace period and few missing files at the time of the audit. These findings were immaterial to this analysis, as set out in full in the new issue report.

Fitch conducted a review of a small targeted sample of UC's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis:
- Portfolio stratification data provided by UC as at 1 March 2016
- Historical performance data provided by UC up to end-December 2015
- Transaction legal documentation