DBRS Assigns Ratings to the Class A Notes issued by Dolomiti Mortgage S.r.l.

DBRS Ratings Limited (“DBRS”) has today assigned a rating of AAA (sf) to the EUR 103.6 million Class A Mortgage Backed Floating Rate Notes (the “Rated Notes”) issued by Dolomiti Mortgage S.r.l. (the “Issuer”). The Issuer is a limited liability company incorporated under the laws of Italy. The transaction is a cash flow securitisation collateralised by (i) a portfolio of bank loans to Italian Small and Medium Sized Enterprises (“SMEs”) and (ii) a portfolio of mortgage loans to homeowners, both of which were originated by Hypo Alpe – Adria Bank S.p.A. (“Hypo”). The rating on the Rated Notes addresses the timely payment of principal and interest payable on or before the Maturity Date, on the Payment Date in July 2051. DBRS does not rate the EUR 156.799 million Class J Mortgage Backed Fixed Rate Notes (the “Class J Notes”). The Class A Notes and Class J Notes together are referred to as the “Bonds”.

The transaction portfolio consists of the aggregate of (i) 309 mortgage-backed loans extended to 274 separate SME borrowers with a balance of EUR 139.5 million and (ii) 1,116 mortgage loans extended to 1,063 separate borrowers with a balance of EUR 96.6 million. On the Issue Date, the par balance of the portfolio is EUR 236.07 million, which is funded by the aggregate issuance of the Bonds. There are three reserve funds financed by the issuance of the Bonds:
• Cash Reserve of EUR 8.28 million.
• Initial Set-Off Amount of EUR 11.80 million.
• Commingling Amount of EUR 3.79 million.

None of these reserves can amortise, other than due to being used as specified in the transaction. They will all be replenished through the Priority of Payments.

Hypo acts as the Originator and Servicer of the portfolio, and the Cash Manager. J.P. Morgan Securities Limited (“J.P. Morgan”) is the Hedge Counterparty. The Bank of New York Mellon (Luxembourg) S.A. is the Italian Account Bank, and The Bank of New York Mellon (London) is the English Account Bank. In addition, Unipol Banca S.p.A. is the Back-Up Servicer.

The rating of the Rated Notes is based upon DBRS’ review of the following considerations:
• Transaction structure, the form and sufficiency of available credit enhancement, the portfolio characteristics and the cash trapping mechanisms.
-- The Rated Notes’ credit enhancement is equal to the asset overcollateralisation of the Rated Notes. This is the amount by which the portfolio balance exceeds the notional of the Rated Notes and, on the Issue Date, is equal to EUR 132.84 million.
-- In addition, the reserve amounts provide additional protection to the Rated Notes by providing liquidity protection against (i) the risk that there is an interruption in the operation of the Servicer, (ii) any set-off exposure, and (iii) any mismatch between the proceeds received and the amounts required to be paid as senior fees, and interest due and payable to the Rated Notes. In addition, the Class J Notes do not receive any interest until the Rated Notes have been paid down completely, which essentially provides an interest diversion mechanism from the start of the transaction.
-- The credit enhancement and other protections for the Rated Notes enable them to return the scheduled principal and interest payments under projected default and recovery scenarios.
-- The Cash Reserve is funded at the close of the transaction through the issuance of the Class J Notes. The Cash Reserve can be used to pay any unpaid items in the Pre-Trigger Interest Priority of Payments that are the fees, hedge payments that are paid senior in the Priority of Payments, and the interest due and payable to the Rated Notes.

• The Issuer has entered into two hedging contracts, both of which are Basis Swaps.
-- Under the first Basis Swap, the portfolio loans that reference 1 month EURIBOR are swapped into 3 month EURIBOR. The Issuer pays the average of the 1 month EURIBOR settings on the first day of the month before, on and after the start of the calculation period in question. J.P. Morgan pays 3 month EURIBOR with the same calculation dates as the Rated Notes. In addition, J.P. Morgan pays a fixed amount per period as specified in the swap confirmation. The notional of this Basis Swap is the lesser of (i) a pre-set schedule based on the expected amortisation of the 1 month EURIBOR loans, and (ii) the actual outstanding non-defaulted and non-delinquent balance of such loans.
-- Under the second Basis Swap, the portfolio loans that reference 3 month and 6 month EURIBOR are swapped into 3 month EURIBOR. The Issuer pays the average of the 3 month EURIBOR settings on the first day of the first, second, and third months before the start of the calculation period in question. J.P. Morgan pays 3 month EURIBOR with the same calculation dates as the Rated Notes. In addition, J.P. Morgan pays a fixed amount per period as specified in the swap confirmation. The notional of this Basis Swap is the lesser of (i) a pre-set schedule based on the expected amortisation of the 3 month and 6 month EURIBOR loans, and (ii) the actual outstanding non-defaulted and non-delinquent balance of such loans.
-- In the opinion of DBRS, these are less-than perfect hedges. Under rapidly increasing or decreasing interest rates, the amount paid by the Issuer will vary compared to what an ideal hedge would have been. As such, DBRS stressed the performance of the hedge in its analysis.

• Over the life of the transaction, Hypo, as the Servicer, has the authority to modify the loans in the portfolio, depending on the situation of the borrower. The Servicer would do this if, in its judgment, it would most likely get a more favorable outcome than if no relief were offered. These modifications, or renegotiations, include reductions in interest rates, payment holidays, extension of the loan term and switching from fixed to floating interest rates at a lower level. However, these renegotiations will, in general, be disadvantageous to the Issuer in the short term, leading to a loss, even if they produce a better overall outcome in the long term. This transaction has no mechanism to compensate the Issuer for these losses; therefore DBRS stressed the transaction parameters additionally to account for this.

• Review of the legal structure and operational capabilities of key transaction participants.

• Hypo has been under some stress in recent months. As such, DBRS anticipates that Hypo may not be able to fulfil its role as Servicer at least until the Rated Notes have been paid down as sufficient to warrant that a Back-Up Servicer is in place from the Issue Date.
-- Unipol Banca S.p.A. (“Unipol”) has been appointed as the Back-Up Servicer.
-- Under the Servicing Agreement, Unipol will succeed Hypo automatically if a Servicer Termination Event occurs.
-- Hypo and Unipol share the same IT platform, provided by Cedacri, which should aid the handover if it is necessary.
-- The Commingling Amount of EUR 3.7 million will allow the transaction to continue to make the payments required for the senior fees and the Class A interest in case there are any monies caught up in Hypo during the transfer of responsibility as Servicer.

• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the approved terms. Interest and principal payments on the Notes will be made quarterly, generally on the 27th day of January, April, July and October. The first payment date will be 27 April 2012.

• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.

• Soundness of the legal structure and presence of legal opinions which address the true sale of the assets to the trust and the non-consolidation of the special purpose vehicle, as well as the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

The principal methodology is “Master European Granular Corporate Securitisations (SME CLOs)”, which can be found on our website under Methodologies.

The sources of information used for these ratings include the parties involved in the rating, including but not limited to the Originator, Hypo Alpe – Adria Bank S.p.A., the Issuer, Dolomiti Mortgage S.r.l., and its agents.

DBRS considers the information available to it for the purposes of providing this rating was of average quality. DBRS adjusted its analysis to account for the quality of information provided. The source of our concern is the historical information provided for DBRS to determine the average annual default rate of corporate borrowers. The average annual default rate for corporate borrowers is a key input parameter in DBRS analysis, and is derived by DBRS from information provided to it by Hypo. Hypo provided historical default and delinquency information based on the notional amount and number of loans it had originated since 2005, but this did not match the definition and form that DBRS bases its analysis on. The definition of default in the Italian market is at least 180 days in arrears as opposed to the European Central Bank standard of 90 days. The Hypo data reflected this standard.

However, Hypo did supply additional arrears information incorporating both the notional and the number of loans in arrears. DBRS was therefore able to use this data to analyse the historical performance of Hypo. As a result, the data provided by Hypo is considered to be of average quality. Aside from the data quality issue with regards to the calculation of the average annual default rate, DBRS considers the other information available to it for the purposes of providing this rating was of satisfactory quality.

Further information on DBRS’ analysis of this transaction will be available in a rating report on http://www.dbrs.com, or by contacting us at info@dbrs.com.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

This is the first DBRS rating on this financial instrument.

For additional information on DBRS European CLO and Tranched Credit Derivatives, please see European Disclosure Requirements, located at http://www.dbrs.com/research/237794.

Lead Analyst: Simon Ross
Rating Committee Chair: Jerry van Koolbergen
Initial Rating Date: 29 November 2011

Note:
All figures are in Euros unless otherwise noted.