OREANDA-NEWS. Fitch Ratings has assigned Quarzo S.r.l. - Series 2016 the following rating:

EUR2,640m Series A, due November 2032: 'A+sf'; Outlook Stable
EUR660m Series B, due November 2032: not rated

The transaction is a securitisation of Italian unsecured consumer loans originated by Compass Banca Spa, which is fully owned by Mediobanca Spa (BBB+/Stable/F2). The transaction is the sixth securitisation by the originator and the second rated by Fitch.

KEY RATING DRIVERS
Performance In Line With Peers
Fitch expects a weighted average (WA) lifetime portfolio default rate of 7.4% and a recovery rate of 12.8%, in line with other Italian consumer loan deals. The assumptions are based on the originator's historical performance. Fitch has applied a WA stress multiple of 3.76x at 'A+sf' and assumed a recovery haircut of 38.5% for each sub-pool at 'A+sf'.

Long Revolving Period
The transaction has a 3.5-year revolving period, longer than for other Italian consumer loan transactions rated by Fitch. This exposes the deal to additional risks due to greater exposure to the economic cycle and worsening asset quality. The length of the revolving period has been taken into account in setting asset assumptions for the pool.

Expected Portfolio Migration
Based on the transaction's eligibility criteria, Fitch assumes the portfolio will migrate to the worst possible portfolio composition during the revolving period (ie, the personal loan portfolio will migrate to 78%, new auto loans to 10%, used auto loans to 10% and purpose loans to 2% of the portfolio).

All Excess Spread Trapped
All available funds after payment of senior expenses, series A interest and liquidity reserve will be used to redeem the series A during the amortisation period.

Insurance-Related Counterparty Risk
The loans also finance the purchase of insurance policies offered with the loan. The issuer could be exposed to claims by borrowers if both Compass and an insurer defaulted. Fitch analysed the resilience of the rating to this potential risk and concluded that the assigned rating is sufficiently strong.

Counterparty Risk a Constraint
The maximum achievable rating is 'A+sf' due to the account bank replacement language (ie upon loss of 'BBB+' and 'F2'), which is not commensurate with ratings higher than the 'Asf' category according to Fitch's counterparty risk criteria.

RATING SENSITIVITIES
Unexpected increases in the default rate and loss severity on defaulted loans could produce loss levels greater than Fitch's assumptions and could result in negative rating action on the notes.

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

Rating sensitivity to reduced recovery rate assumptions
Current rating: 'A+sf'
Decrease in recovery rate by 10%: 'A+sf'
Decrease in recovery rate by 25%: 'Asf'
Decrease in recovery rate by 50%: 'Asf'

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

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

DATA ADEQUACY
Fitch sought to receive a third party assessment conducted on the asset portfolio information, but none was available for this transaction.

Fitch conducted a review of a targeted sample of the originator's loan files and found the information contained in the reviewed files to be 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 following information was used in the analysis:
- Loan-by-loan data provided by the originator as at 16 December 2015 and 14 February 2016
- Historical performance data provided by the originator
- Transaction legal documentation