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Rating Action:

Moody's Investors Service assigns A2 (sf) rating to Italian CDQ ABS notes issued by DYRET SPV S.r.l.

22 Dec 2017

Milan, December 22, 2017 -- Moody's Investors Service ("Moody's") has assigned the following definitive rating to ABS notes issued by DYRET SPV S.r.l. (the "Issuer"):

....EUR 210.6 M Class A Asset Backed Fixed Rate Notes due December 2038, Assigned A2 (sf)

Moody's has not assigned a rating to the EUR 26.4M Class B Asset Backed Fixed Rate Notes, the EUR 14.3M Class C Asset Backed Fixed Rate Notes and the EUR 12.2M Class D Asset Backed Variable Return Notes which have been issued at the same time.

RATINGS RATIONALE

Dyret SPV S.r.l. is a 12 months revolving securitisation of consumer loans, specifically Cessione del Quinto ("CDQ") loans and Delegazione di Pagamento ("DP") loans, extended to borrowers resident in Italy and originated by Dynamica Retail S.p.A. (NR) ("Dynamica"). The servicer is Zenith Service S.p.A. (NR) ("Zenith") who has delegated the majority of the servicing tasks to Dynamica in its role of sub-servicer.

The portfolio as of 6 December 2017 comprises 8,479 loans with a total outstanding principal balance of EUR 161.14M. The portfolio is split between CDQ (81.25%) and DP (18.75%) loans. The average current loan size is EUR 19,004 and the portfolio is 21.65 months seasoned. A significant portion of borrowers receive income from the Italian public sector: 54.82% of the borrowers work in the public sector and 35.23% borrowers receive public sector pension from INPS (the Italian social security institute). References to characteristics of the portfolio in this press release refer to the portfolio as of 6 December 2017.

EUR 41.1M Class A notes and EUR 10.3M Class B notes were initially issued on May 2014 (the "First Issue Date"). Since then some notes were repaid and new notes issued and new receivables were purchased. As of December 2017, the aggregate portfolio outstanding principal balance is EUR 161.14M, the Class A subscribed amount is EUR 137.19M, the Class B subscribed amount is EUR 14.79M, the Class C subscribed amount is EUR 6.57M and the Class D subscribed amount is EUR 7.54M. Each month during the ramp up and revolving period, the issuer can purchase additional loans in line with certain eligibility criteria. The transaction ramp up period ends in December 2018. Among the ramp up criteria the Class A notes minimum subordination can lower from 14.86% as of December 2017 to 14.83%.

All loans in the portfolio as of 6 December 2017 benefit from life insurance and 64.77% also benefit from unemployment insurance. The top three life and unemployment insurers represent over 58.89% of the pool: HDI Assicurazioni S.p.A. (NR) (21.90%), Net Insurance S.p.A. (NR) (19.85%) and Aviva Life S.p.A. (NR) (17.14%).

The insurance policies will pay off the outstanding loan balance in the event of, inter alia, borrowers' unemployment, resignation or death. Since those events would be the typical driver of defaults in a standard consumer loan transaction, the existence of the insurance is credit positive. Therefore, the default risk of the insurers and their correlation to the portfolio are a key aspect in Moody's quantitative analysis of the transaction.

Moody's analysis focused, amongst other factors, on: (i) an evaluation of the underlying portfolio during the ramp-up/ revolving and amortisation period, complemented by the historical performance information as provided by the originator, (ii) the liquidity and credit support provided by subordination, excess spread and the amortising cash reserve, (iii) the specific contractual features of CDQ and DP loans, (iv) the exposure to different insurance companies and (v) the other legal and structural characteristics of the transaction.

According to Moody's, the transaction benefits from credit strengths such as (i) low historical losses, (ii) strong loan repayment mechanisms and (iii) significant recoveries from insurance coverage. However, Moody's notes that the transaction features some credit challenges such as (i) the revolving and ramp-up structure, and (ii) operational risk due to the limited financial strength of the originator, servicer and sub-servicer, and (iv) some concentrations in insurance counterparty exposure.

No provisional ratings were assigned on the issued notes.

MAIN MODEL ASSUMPTIONS

Portfolio expected defaults of 14.0% is slightly higher the EMEA CDQ Loan ABS average and is based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historical performance data, (ii) general market trends, (iii) benchmark transactions, (iii) the concentration limits during the revolving/ramp-up period, and (iv) other qualitative considerations.

Portfolio Credit Enhancement ("PCE") of 30.00% (prior to insurance benefit) is higher than the EMEA CDQ Loan ABS average and is based on Moody's assessment of the pool, the ramp-up period and the relative ranking to originator peers in the Italian CDQ loan market. The PCE considers a mean pre-insurance recovery rate in line with the Italian CDQ/DP market of 10%.The PCE level at the Aa2 country ceiling results in an implied coefficient of variation ("CoV") of 31.92% (prior to insurance benefit).

Portfolio expected recoveries of 75% (non-insurance default scenario) taking into account insurance payments are in line than the EMEA CDQ Loan ABS average and are based on Moody's assessment of the lifetime recovery expectation for the pool taking into account (i) historical performance data, (ii) benchmark transactions and (iii) other qualitative considerations. Moody's also considered the insurance company exposure in the transaction and the impact of one or more insurance companies defaulting on the recovery figure above, as well as shifts in the concentration to single insurance companies. These scenarios are weighted by the credit quality of the insurance companies to derive a joint loss distribution for Moody's cash-flow model ABSROM.

Interest Rate Risk Analysis: There is no interest rate mismatch in the transaction since all CDQ and DP loans pay fixed interest rate, as do the Class A notes.

Transaction Structure: the transaction benefits from a Cash Reserve which is equal to 2.0% of the outstanding principal balance of the portfolio and it is funded via the Class D Notes; the cash reserve can amortize up to 4.0% of the outstanding principal balance of the portfolio with a floor of 1.0% of the outstanding portfolio balance.

METHODOLOGY

The principal methodology used in this rating was "Moody's Approach to Rating Consumer Loan-Backed ABS" published in September 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:

Factors that may cause an upgrade of the rating include a significantly better than expected performance of the pool and an upgrade of Italy together with a strong originator/servicer.

Factors that may cause a downgrade of the rating include a decline in the overall performance of the pool according to Moody's expectations or a significant deterioration of the credit profile of the counterparts including the insurance companies not covered through other structural features.

LOSS AND CASH FLOW ANALYSIS:

Moody's used its cash flow model ABSROM for its quantitative analysis of the transaction. ABSROM enables users to model various features of a standard European ABS transaction - including the loss distribution of the assets, their amortisation profile and yield through time as well as the specific priority of payments, hedging and reserve funds on the liability side of the ABS structure. The model is used to calculate the cash flows and determine the loss for each tranche under each portfolio default /loss scenario. The scenarios are then weighted according to the probabilities accorded to that default/loss scenario to derive the expected loss for each tranche.

The ratings address the expected loss posed to investors by the legal final maturity of the notes. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal by legal final maturity of the notes. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed but may have a significant effect on yield to investors.

STRESS SCENARIOS:

Parameter sensitivities for this transaction have been calculated in the following manner: Moody's tested nine scenarios derived from the combination of mean default: 14.0% (base case), 15.0% (base case +1%), 16.0% (base case + 2.0%) and recovery rate assuming no insurer defaults: 75.0% (base case), 60% (base case - 10%), 50% (base case - 20.0%). The 14.0% / 75.0% scenario represent the base case assumptions used in the initial rating process. At the time the rating was assigned, the model output indicated that Class A would have achieved Baa2 (sf) even if the mean default was as high as 16.0% with a recovery as low as 65.0% (all other factors unchanged).

Parameter sensitivities provide a quantitative, model-indicated calculation of the number of notches that a Moody's-rated structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. It is not intended to measure how the rating of the security might migrate over time, but rather, how the initial rating of the tranches might differ as certain key parameters vary. Therefore, Moody's analysis encompasses the assessment of stress scenarios.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's describes its loss and cash flow analysis in the section "Ratings Rationale" of this press release.

Moody's describes the stress scenarios it has considered for this rating action in the section "Ratings Rationale" of this press release.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Francesca Pilu
Vice President - Senior Analyst
Structured Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Armin Krapf
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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