OREANDA-NEWS. Fitch Ratings has affirmed Auto ABS Italian Loans Master S.r.l. ratings as follows:

Class A1 notes, due December 2028: 'AA+sf'; Outlook Stable
Class A2 notes, due December 2028: 'AA+sf'; Outlook Stable
Class B notes, due December 2028: not rated

The ratings address timely payment of interest and payment of principal by the final maturity date in accordance with the transaction documents.

The notes are backed by a pool of Italian auto loan receivables originated by Banque PSA Finance, Italian branch (BPF-IT). Restructuring terms include the extension of the revolving period for further 12-months, starting January 2016. Also from this date, a joint-venture (JV) between BPF-IT and Santander Consumer Finance S.A. (SCF) will replace BPF-IT in its capacity as originator and servicer.

KEY RATING DRIVERS

Low Expected Defaults
Fitch determined a weighted average (WA) default base case of 2.5% on a worst-case revolving portfolio, down from 2.7% at closing in September 2014. The WA stress multiple on defaults remains at 5.5x at 'AA+sf' to account for further deterioration in the Italian economy.

Unsecured Recoveries
Due to the unsecured nature of Italian auto financing, recoveries mainly rely on borrowers' restored performance or settlement of the loans rather than car sale proceeds. In light of improved historical data, Fitch has increased the WA expected recovery rate to 25.1% from 22.7% at closing; the 'AA+sf' haircut of 50% was maintained.

Revolving Period Increases Risk
Following the initial 16-month revolving period, the transaction has been restructured to accommodate for an additional 12-month revolving period starting January 2016, which increases risk of portfolio deterioration relative to a static transaction. However, this risk is mitigated by amortisation and accelerated amortisation events, concentration limits, and eligibility criteria for the additional purchased receivables.

JV as Originator and Servicer
The presence of a new originator and seller has been reviewed, both from a legal and analytical perspective. Based on its review of the relevant legal opinions, Fitch does not believe that the transaction will be subject to additional risks as a result. Moreover, the presence of an experienced non-captive player such as SCF potentially reduces risks arising from new business partnerships (e.g. loosening origination standards).

Liquidity and Commingling Risks Mitigated
Banca PSA Italia S.p.A. (Banca PSA) is not rated and no back-up servicer was in place at closing; however, risks arising from liquidity disruption and commingling are in Fitch's view adequately mitigated by dedicated dynamic liquidity and commingling reserves.

Sovereign Cap
Italian structured finance transactions are capped at six notches above the rating of the Republic of Italy (BBB+/Stable/F2). The capital structure of this transaction does not allow for a direct upgrade of the senior notes upon an upgrade of the sovereign rating due to certain counterparty arrangements and qualified investment provisions in the documents.

TRANSACTION CHARACTERISTICS
Portfolio Characteristics
The loans are granted to individual and commercial obligors resident in Italy, for the purchase of new (92% of the pool balance) and used cars (8% of the pool balance). As of end-November 2015, the portfolio consisted of 86,713 loan contracts, with an outstanding aggregate principal balance of EUR525m and a WA remaining term of 36.5 months.

Capital Structure
Credit enhancement (CE) for the senior notes is provided by overcollateralisation, via subordination of the class B notes (12.5%) and a general reserve (1.65%). The transaction features a principal deficiency ledger (PDL) mechanism, which captures excess spread in the interest priority of payments when defaults occur. The initial excess spread in favour of the senior notes - calculated by assuming deterioration towards portfolio limits within the revolving period - is about 3.2% p.a.

Key Counterparties
Banca PSA, the new JV between BPF-IT and SCF will be assuming the role of originator and servicer as of January 2016. It will be a separate legal entity, operating in Italy with a banking license. The issuer, Auto ABS Italian Loans Master S.r.l., is a special purpose vehicle incorporated in Italy. The issuer has a fixed-floating interest rate swap with HSBC France (AA-/Stable/F1+) to hedge the interest rate mismatch between the fixed-rate paying assets and the floating-rate notes.

RATING SENSITIVITIES
Expected impact on the class A note rating of increased defaults:
Current ratings: 'AA+sf'
Increase base case defaults by 10%: 'AA+sf'
Increase base case defaults by 25%: 'AA+sf'
Increase base case defaults by 50%: 'AAsf'

Expected impact on the class A note rating of reduced recoveries:
Current ratings: 'AA+sf'
Reduce base case recovery by 10%: 'AA+sf'
Reduce base case recovery by 25%: 'AA+sf'
Reduce base case recovery by 50%: 'AA+sf'

Expected impact on the class A note rating of increased defaults and reduced recoveries:
Current Ratings: 'AA+sf'
Increase base case defaults by 10%; reduce base case recovery by 10%: 'AA+sf'
Increase base case defaults by 25%; reduce base case recovery by 25%: 'AAsf'
Increase base case defaults by 50%; reduce base case recovery by 50%: 'A+sf'

Key Rating Drivers and Rating Sensitivities will be further described in the updated New Issue Report (NIR) published later this week, available at www.fitchratings.com.

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 the third party assessment conducted on the asset portfolio information and concluded that there were no adverse findings material to the rating analysis.

Fitch also conducted a review of a small targeted sample of BPF-IT's origination files. No material discrepancies between the declared origination policies and the original documentation or between the original documentation and the loan-by-loan data tape were found.

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:
- Dynamic quarterly delinquency data from 3Q07 to 2Q15
- Static quarterly default data from 3Q07 to 2Q15
- Static quarterly recovery data from 3Q10 to 2Q15
- Dynamic quarterly prepayment data from 3Q07 to 2Q15
- Quarterly origination data from 3Q07 to 2Q15
- Monthly investor reports from October 2014 to November 2015