OREANDA-NEWS. Fitch Ratings has affirmed three Italian mixed-leases transactions originated by Iccrea BancaImpresa SpA (Iccrea, BBB/Negative/F3), and revised the Outlook for two tranches to Stable from Negative as follows:

Agri Securities S.r.l. Series 2008 (Agri Securities 2008)
EUR42.7m class A notes affirmed at 'AAsf'; Outlook revised to Stable from Negative
EUR136.4m class B notes affirmed at 'B+sf'; Outlook revised to Stable from Negative
EUR40.6m class C notes: not rated

Agricart 4 Finance S.r.l. Series 2007 (Agricart 2007)
EUR248.4m class A1 notes affirmed at 'Asf'; Outlook Stable
EUR58.5m class A2 notes affirmed at 'BBBsf'; Outlook Stable
EUR65m class B notes: not rated
EUR26.5m class C notes: not rated

Agricart 4 Finance S.r.l. Series 2009 (Agricart 2009)
EUR65m class A notes affirmed at 'AA+'; Outlook Stable
EUR173m class B notes: not rated

These transactions (together, the Agri transactions) are securitisations of leasing receivables with the following asset types as of end-February 2015: real estate (93.1% for Agri Securities 2008, 74.9% for Agricart 2007, 74.1% for Agricart 2009), equipment (6.1%, 18.1%, 22.3%), industrial vehicles (0.6%, 4.1%, 2.1%) and autos (0.2%, 3%, 1.6%).

KEY RATING DRIVERS

Fitch has affirmed the ratings despite continued poor performance of the assets, as it is offset by increased credit enhancement (CE) from the notes' amortisation. Fitch believes that the recent performance is broadly in line with its revised expectations determined last year.

Agri Securities 2008
The transaction's performance has largely been below Fitch's original expectations and has been underperforming the other Agri transactions. However, the large CE for the class A notes, which has built up to above 83.3%, from 17.5% at closing in July 2008, due to the sequential amortisation of the notes, is considered adequate for the current ratings, in spite of the increasing volatility of quarterly defaults.

CE available to the class B notes is 29.8% of the outstanding non-defaulted assets and is only provided by lease receivables as the transaction's EUR5m debt service reserve (DSR) is only available for liquidity support. Interest on the class B notes has been deferred since March 2013 due to the breach of a trigger based on cumulative losses. The deferred interest does not accrue and will be paid once the class A notes are paid in full (or once recoveries from the assets are sufficient to drive cumulative losses down, which appears less likely), provided there are sufficient funds. Excess spread has also been trapped in the structure since September 2010.

The advanced amortisation of the class A notes (which are now at 5.1% of their original balance) underpins the revision of the Outlook to Stable from Negative for both class A and class B notes.

Based on recent performance and its outlook on mixed-lease receivables, Fitch expects that more than one third of the current EUR255m collateral would default, which is consistent with the transaction's lifetime default expectation to 25%; as of end-February 2015 a default rate of 17.1% or EUR228.6m had already been realised. Fitch does not have detailed information (eg vintage or asset type break-down) on the recoveries generated by these defaulted assets so it is unable to forecast the future proceeds from current defaults; however, the agency took this into account in its assumption of future excess spread.

Since late 2013, gross excess spread has been insufficient to cover the principal losses and during 2014 the transaction had an outstanding principal deficiency ledger (PDL) of about EUR14m. The PDL was almost cleared (to EUR0.5m) in the latest period, mainly due to repurchase of defaulted assets, which boosted recoveries.

Finally, the transaction documents require the issuer to appoint a back-up servicer upon the servicer's rating falling below 'BBB+'. Although Fitch downgraded Iccrea BancaImpresa's rating to 'BBB' from 'BBB+' on 3 February 2014, the issuer did not appoint a back-up servicer. However, this did not have a material effect on the ratings, as payment interruption risk is not a major risk driver, especially in the current interest rate environment.

Agricart 2007
The transaction began amortising the class A notes in June 2014, before the scheduled end of the revolving period in September 2016, following an amendment of the documentation.

During the amortisation period, the originator has continued to support the transaction by repurchasing assets. Repurchased assets so far have amounted to about 7% of the total assets purchased by the issuer, of which more than half were defaulted.

Fitch believes that CE for the class A1 and A2 notes (40.6% and 26.7% respectively, based on a non-defaulted collateral of EUR418.4m) is sufficient to sustain the current ratings. Based on recent performance and its outlook on mixed-lease receivables, Fitch expects that almost 22% of the current collateral would default, and decided to maintain the lifetime default expectation at 17%. As of end-February 2015 EUR92.3m or 7.7% of the assets had defaulted. Of these, EUR43m have been repurchased thus achieving full recovery.

Agricart 2009
The transaction - whose revolving period ended in December 2012 - is performing better than the other Agri transactions. Unlike Agricart 2007 it did not historically benefit from any repurchases of non-performing leases by the originator, although some repurchases began in 2H14. In one occasion (May 2014), excess spread could not entirely cover principal losses, which resulted in a PDL of almost EUR1m. The transaction's performance has improved since, with delinquencies on a downward trend to 2.4% in February 2015. Based on recent performance and its outlook on mixed-lease receivables, Fitch expects that about 18.4% of the current EUR240.8m collateral would default, which is consistent with the transaction's lifetime default expectation of 11%. As of end-February 2015 EUR49.6m or 5.7% of assets had defaulted.

The CE on the class A notes reached 73% in February 2015, which is the main driver for the affirmation at 'AA+sf', the highest rating achievable by an Italian transaction.

RATING SENSITIVIES

Fitch incorporated the above-mentioned assumptions in its rating considerations, as a result of the recent performance. Sensitivities of the ratings to changes in defaults and recoveries are shown below:

Agri Securities 2008
Rating sensitivity to increased default rates (class A/B)
Current ratings: 'AAsf' / 'B+sf'
Increase base case by 10%: 'AA-sf' / 'Bsf'
Increase base case by 25%: 'A+sf' / 'CCsf'

Rating sensitivity to reduced recovery rates (class A/B)
Current ratings: 'AAsf' / 'B+sf'
Reduce base case by 25%: 'AAsf'/ 'B+sf'

Rating sensitivity to increased default rate and reduced recovery rate (class A/B)
Current ratings: 'AAsf' / 'B+sf'
Increase default base case by 10%; reduce recovery base case by 10%: 'AA-sf' / 'CCCsf'
Increase default base case by 25%; reduce recovery base case by 25%: 'A+sf' / 'CCsf'

Agricart 2007

Rating sensitivity to increased default rates (class A1/A2)
Current ratings: 'Asf' / 'BBBsf'
Increase base case by 10%: 'A-sf' / 'BBB-sf'
Increase base case by 25%: 'A-sf' / 'BB+sf'

Rating sensitivity to reduced recovery rates (class A1/A2)
Current ratings: 'Asf' / 'BBBsf'
Reduce base case by 10%: 'Asf' / 'BBB-sf'
Reduce base case by 25%: 'Asf'/ 'BBB-sf'

Rating sensitivity to increased default rate and reduced recovery rate (class A1/A2)
Current ratings: 'Asf' / 'BBBsf'
Increase default base case by 10%; reduce recovery base case by 10%: 'A-sf' / 'BBB-+sf'
Increase default base case by 25%; reduce recovery base case by 25%: 'BBB+sf' / 'BB+sf'

If the originator's support ceases following the end of the revolving period, the reported performance can be significantly affected. Fitch took this into account in its analysis, although significant deviations from the tested scenarios may impact the ratings.

Agricart 2009
Rating sensitivity to increased default rates (class A)
Current rating: 'AA+sf'
Increase base case by 25%: 'AA+sf'

Rating sensitivity to reduced recovery rates (class A)
Current rating: 'AA+sf'
Reduce base case by 25%: 'AA+sf'

Rating sensitivity to increased default rate and reduced recovery rate (class A)
Current rating: 'AA+sf'
Increase default base case by 25%; reduce recovery base case by 25%: 'AA+sf'

As the transaction is now in the amortisation period and the CE for class A notes is building up rapidly, it is resilient to highly stressful assumptions on the future default rates of the collateral portfolio.

The rating is currently capped at 'AA+sf', due to Italy's rating. Any change to the cap would lead to a change of the rating of the notes.

The review of these transactions was carried out applying the Consumer ABS rating criteria in lieu of the SME CLO rating criteria due to the limited amount of available information (e.g. loan-by-loan internal ratings of the originator). Fitch has observed multiple deals with similar assets and believes that the former methodology is adequate.