OREANDA-NEWS. March 30, 2015. Fitch Ratings has downgraded F-E Gold S.r.l.'s (F-E Gold) notes, as follows:

EUR95.1m class A2 notes downgraded to 'Asf' from 'A+sf'; Outlook Stable
EUR21.5m class B notes downgraded to 'BB+sf' from 'BBBsf'; Outlook Negative
EUR3.9m class C notes downgraded to 'BB-sf' from 'BBsf'; Outlook Negative

F-E Gold is a securitisation of performing leases on real estate, auto and equipment assets originated in 2006. To date, the real-estate pool accounts for 99.8% of the collateral. The leases pay mainly floating rate with monthly instalments. The notes pay quarterly at a floating rate based on Euribor.

KEY RATING DRIVERS

DETERIORATED PERFORMANCE
Since Fitch's last review in April 2014, the transaction's performance has deteriorated, especially as far as delinquencies in 2H14 are concerned: the delinquency ratio peaked at 10.3% at end-2014, albeit to some extent due to information systems integration hiccups following the merger between Fineco Leasing SpA (the original seller and servicer) and UniCredit Leasing SpA in 3Q14. The cumulative default and loss ratios were at 8.8% and 5.2%, respectively at end-2014; this compounds Fitch's declining performance outlook on the Italian mixed-leases sector. For F-E Gold, the lifetime default expectation was maintained at 10%.

LIMITED CREDIT ENHANCEMENT INCREASE
The credit enhancement (CE) for the class A notes is currently 34.1%; it has increased at a relatively slow pace since the end of the revolving period because of the pro-rata amortisation of the notes (in all but two quarters). The portfolio migration to almost exclusively real-estate leases has further slowed down the amortisation, due to their longer average tenor. Conversely, the CE for the class B and C notes has increased to 16.4% and 13.1% respectively, due to both the pro-rata amortisation and the static EUR15.3m reserve fund.

TAIL RISK DUE TO PRO-RATA AMORTISATION
The transaction cleared the principal deficiency ledger (PDL) outstanding during 4Q14 and therefore will revert to pro-rata amortisation in the next quarter. The documentation does not include any trigger to switch the amortisation to sequential in the transaction's tail, as it is common in recent pro rata-amortising deals. However, a further breach of a performance trigger (based on either cumulative defaults or PDL) would irreversibly switch the amortisation back to sequential. The recent performance suggests such a breach is likely (and within Fitch's remaining default expectations), although the originator's support might delay or even avoid it through delinquency buy-backs. For example, the transaction would revert to sequential amortisation if more than EUR12.8m of defaults occurred, but the originator is still permitted to repurchase EUR14.4m of assets.

INCREASING CONCENTRATION
Fitch analysed the loan-by-loan portfolio as of end-2014 through its proprietary Portfolio Credit Model (PCM) to assess the impact of increasing obligor and sector concentration. The top 10 lessees represent 7.2% of the non-defaulted portfolio, while 24 lessees (out of 1,057) weigh more than 50bp and therefore are considered large in the SME CLO criteria framework. Increasing concentration underpins the Negative Outlook on the class B and C notes.

RATING SENSITIVITIES
In Fitch's rating sensitivity analysis, the expected remaining default rate was assumed at 19% on the EUR121.1m remaining non-defaulted collateral.

Expected impact upon the note ratings of increased default rate (class A2/B/C):
Current rating: 'Asf'/'BB+sf'/'BB-sf'
Increase base case default rate by 10%: 'A-sf'/'BBsf'/'B+-sf'
Increase base case default rate by 25%: 'BBB+sf'/'B+sf'/'CCCsf'

Expected impact upon the note ratings of reduced recovery rate (class A/B/C):
Current rating: 'Asf'/'BB+sf'/'BB-sf'
Reduce base case recovery rate by 10%: 'A-sf'/'BB+sf'/'BB-sf'
Reduce base case recovery rate by 25%: 'A-sf'/'BBsf'/'B+sf'

Expected impact upon the note ratings of increased defaults and reduced recoveries (class A/ B/C):
Current rating: 'Asf'/'BB+sf'/'BB-sf'
Increase base case default rate by 10%; reduce base case recovery rate by 10%: 'A-sf'/'BBsf'/'CCCsf'
Increase base case default rate by 25%; reduce base case recovery rate by 25%:
'BBBsf'/'CCCsf'/'CCsf'

Finally, if the transaction continues to amortise on a pro-rata basis until the collateral amortises in full, the rating on the class A and, to a lesser extent, the class B notes may be affected.