Fitch Affirms Consumer Two S.r.l.'s Notes at 'AA+sf'/Stable
Class A1 notes (ISIN IT0004974983): affirmed at 'AA+sf'; Outlook Stable
Class A2 notes (ISIN IT0004974777): affirmed at 'AA+sf'; Outlook Stable
The transaction is a securitisation of fixed-rate unsecured consumer loans originated and serviced by UniCredit S.p.A. (BBB+/Stable/F2). The portfolio comprises loans advanced to individuals, either directly to their own accounts for a variety of different purposes (personal loans, 97.2% of the pool in August 2015) or for the purchase of specific goods (finalised loans, 2.8% in August 2015).
The affirmation reflects that the transaction's performance has been in line with Fitch's base case expectations.
KEY RATING DRIVERS
Strong Credit Enhancement (CE)
Class A1 and A2 notes' available CE increased to 49.7% in September 2015 from 42% one year ago, following the end of the revolving period in June 2015. As of 30 June 2015, EUR66.2m of principal collections, which were not used to purchase subsequent portfolios, was to the credit of the issuer's accounts. The amount - together with the principal collections received from 1 June 2015 to 31 August 2015 - was used to redeem the class A1 and A2 notes at the payment date of September 2015.
Performance in Line with Expectations
As at 31 August 2015, reported cumulative gross defaults and losses (both 1% of the initial portfolio balance) were lower than Fitch's base case expectations set at closing (both 1.95% at the same point of seasoning). However, Fitch has maintained its lifetime expectations for defaults and recoveries unchanged at 9.5% and 10%, respectively. This is due to the recent expiry of the revolving period of the transaction, the long default definition in the deal (loans with at least eight monthly consecutive instalments in arrears) and an increase in arrears from 1Q15.
As at 31 August 2015, total delinquencies and 90+ arrears increased to 3.9% and 1.2% of the outstanding performing and delinquent portfolio, from 2.3% and 0.3% one year earlier. Fitch believes that the increase in delinquent loans may also be partly due to a substantial reduction in the amount of loans in arrears which were bought back by the originator at the end of the revolving period. From closing November 2013 to November 2014, the originator had been repurchasing loans. The cumulative amount of repurchased loans up to November 2014 was EUR33.4m (2.7% of the initial portfolio balance at closing), most of which were delinquent. Only less than EUR115,000 of delinquent loans have been repurchased from 1Q15 to Q315.
The transaction has benefited from healthy levels of gross excess spread to date, averaging 8% (on an annualised basis) of the performing and delinquent portfolio balance between 3Q14 and 3Q15.
Stable Portfolio Features
During the revolving period, concentration risks had remained below the limits envisaged by the transaction's documentation. The shares of flexible and debt consolidation personal loans, which are considered the highest-risk loans in Fitch initial analysis, have decreased since November 2013 (the closing date). As at 31 August 2015, flexible loans (45% maximum concentration allowed during the revolving period) accounted for 33.4% of the total pool, down from 34.9% one year earlier and 35.2% at closing. At the same date, debt consolidation personal loans (45% maximum) accounted for 22.7%, down from 31.6% one year earlier and 37.2% at closing.
Payment Interruption Risk Mitigated
Fitch believes that payment interruption risk is mitigated by a non-amortising EUR24.7m cash reserve (4.5% of the aggregated balance of the class A1 and A2 notes at the payment date of September 2015). The cash reserve provides liquidity support during the transaction's life and credit support up to the earlier of the final maturity and the payment date on which the release of the reserve (together with all other issuer's available funds) allows the full redemption of the class A1 and A2 notes.
The class A1 and A2 notes' ratings are capped by the highest achievable ratings for structured finance transactions in Italy at 'AA+sf'. A rating action on the Italian sovereign (BBB+/Stable/F2) could result in a revision of the highest achievable structured finance ratings and hence the transaction's ratings.
The class A1 and A2 notes' ratings are resilient to stressful assumptions on recoveries. For example, a reduction in Fitch's base case recovery rate (currently 10%) by 25% would not affect the notes' ratings. However, an increase of Fitch's remaining base case default rate (currently 10%) by 10% or by 25% would result in the class A1 and A2 being downgraded by one notch and two notches, respectively.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.
Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.
Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originators' 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 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.
-Servicer report as of 31 August 2015 provided by UniCredit S.p.A.
-Investor report as of 30 September 2015 provided by UniCredit Bank AG, London Branch