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Fitch Affirms Consumer Three on Further Restructuring.

Milan/London: Fitch Ratings has affirmed Consumer Three S.r.l. following a further restructuring of the transaction, as follows:

EUR4,679.1 million Class A, due 31 December 2056: affirmed at 'Asf'; Outlook Stable

EUR1,397.7 million Class J, due 31 December 2056: 'NRsf'

Consumer Three is a revolving securitisation of personal loans originated by UniCredit S.p.A., which closed in April 2016.

The transaction, which was first restructured in July 2018, has been further amended, mainly to: (a) upsize the deal with a one-off pool transfer; (b) re-tranche the notes and downward re-coupon class A; (c) re-size the cash reserve; (d) extend the legal maturity date of the notes; (e) amend the purchase termination event related to the accumulation of cash, so that if funds sitting on the principal accumulation account exceed a certain threshold, the cash not invested in new loans is used to repay principal on the notes without halting the revolving period; (f) change the subsequent portfolios' eligibility criteria to include loans with a maximum maturity falling in 2030 (extended from 2028 before); and (g) amend the definitions of eligible institution for the account bank and eligible investments.


Larger Pool; Unchanged Asset Assumptions

On 13 November 2018, a one-off portfolio of about EUR2 billion personal loans was transferred to the issuer, thus bringing the pool balance to about EUR6.1 billion. The aggregate portfolio consists of 28% flexible loans (ie, the Dynamic product label), 59% debt consolidation loans (ie, Compact) and 13% the residual category "other loans". Overall, the final portfolio has features broadly in line with the pool's before the top-up.

Fitch has been provided with an updated set of historical performance data for the originator's consumer loan book and has observed stable performance over the last six months. The agency has therefore left its base case default, recovery and prepayment assumptions unchanged (and so have its default multiple and recovery haircut at 'Asf') compared with the previous restructuring (see Fitch Affirms Consumer Three on Restructuring, published 25 July 2018).

Cheaper Senior Notes; Lower Credit Enhancement

The interest rate on the class A notes has been reduced to 0.75% from 1.7%. This has increased day one gross excess spread, calculated as minimum portfolio yield minus class A interest rate (weighted on the pool's balance), to 6.4% per year from 5.7% at the previous restructuring in July 2018.

The balance of the class A and J notes has been increased for the issuer to buy the additional portfolio. Credit enhancement (CE) from subordination for the class A notes has reduced to 23% from 26.1% at closing to reflect the cheaper lifetime cost of the notes. Similarly, the cash reserve, which is mainly available to cover interest on the rated notes, now accounts for a lower percentage of the portfolio (0.8% vs 1.5% before) because of the lower coupon on the class A notes, but in Fitch's view it still ensures adequate interest coverage for the senior notes.

Total CE for the class A notes is now 23.8%, and includes the cash reserve, which can provide CE upon amortisation or release at final maturity, to the extent there is an unpaid principal deficiency ledger.

Counterparty Risk May Constrain

According to the amended transaction documents, the issuer's account banks and investments must carry a minimum rating of 'BBB' or 'F2' (unchanged from before), which is commensurate with a maximum rating of the class A notes of 'A+sf'. Even though counterparty risk is not a rating constraint at present, with the notes rated at 'Asf', it may constrain the rating going forward, in particular after the end of the revolving period, when the notes start amortising and the transaction builds up CE.


Rating sensitivity to increased default rate assumptions

Class A current rating: 'Asf'

Increase in default rate by 10%: 'A-sf'

Increase in default rate by 25%: 'BBB+sf'

Increase in default rate by 50%: 'BBB-sf'

Rating sensitivity to reduced recovery rate assumptions

Class A current rating: 'Asf'

Decrease in recovery rate by 10%: 'Asf'

Decrease in recovery rate by 25%: 'A-sf'

Decrease in recovery rate by 50%: 'A-sf'

Rating sensitivity to multiple factors

Class A current rating: 'Asf'

Increase in default rate by 10%, decrease in recovery rate by 10%: 'A-sf'

Increase in default rate by 25%, decrease in recovery rate by 25%: 'BBBsf'

Increase in default rate by 50%, decrease in recovery rate by 50%: 'BBB-sf'


Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch 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 affected the rating 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 and concluded that there were no findings that affected the rating analysis.

Prior to the transaction closing in 2016 and prior to its first restructuring in July 2018, Fitch conducted a review of a small targeted sample of the originator's 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.


The information below was used in the analysis.

-Stratifications for both existing and additional one-off portfolio as of 31 October 2018 provided by Unicredit

-Historical performance data provided by Unicredit up to end-June 2018

-Master amendment agreement

-Performance information, including servicer, payments and investor reports, of Consumer Three S.r.l. up to end-September 2018
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Mar 18, 2019
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