DBRS Assigns Ratings to the Class A Notes issued by Marche M5 S.r.l.

DBRS Ratings Limited (“DBRS”) has today assigned a rating of AA (sf) to the EUR 1,195 million Class A Asset Backed Floating Rate Notes (the “Class A Notes”) issued by Marche M5 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 a portfolio of bank loans to Italian Small and Medium Sized Enterprises (“SMEs”) which were originated by Banca delle Marche S.p.A. (“Marche”). The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in October 2065. DBRS does not rate the EUR 750.9 million Class J Asset Backed Fixed Rate Notes (the “Class J Notes”).

The asset transfer documents were signed on 24 February 2012. On 6 June 2012, the transaction portfolio consisted of 16,388 asset-backed loans extended to 12,377 separate SME borrowers with a current Outstanding Balance of EUR 1,662 million. Since the signing of the asset transfer documents, approximately EUR 259 million in cash (acquired from amortisation and accrued interest) would be used on the first payment date (27 July 2012) to amortise the senior notes and other senior obligations in accordance with priority of payments.

Marche acts as the Originator, Servicer, Cash Manager and Collection Account Bank of the portfolio. J.P. Morgan Securities Limited acts as the Hedging Counterparty. BNP Paribas Securities Services S.A. (Milan Branch) is the Italian Account Bank, and BNP Paribas Securities Services S.A (London Branch) is the English Account Bank. In addition, Italfondiario S.p.A. is the Back-Up Servicer.

The rating of the Class A Notes is based upon DBRS’s review of the following considerations:
• Transaction structure, the form and sufficiency of available credit enhancement, the portfolio characteristics and the cash trapping mechanisms.
-- Credit enhancement is in the form of subordination, through the Cash Fund and excess spread.
-- The current credit enhancement level of 39.7% is sufficient to support the AA (sf) rating of the Class A Notes.
-- The Cash Reserve is funded at the close of the transaction through part of the issuance of the Class J Notes and provides additional protection to the Class A Notes by providing liquidity protection against any mismatch between the proceeds received and the amounts required to be paid as senior fees, and interest due and payable to the Class A Notes.
-- The credit enhancement and other protections for the Class A Notes enable them to return the scheduled principal and interest payments under projected default and recovery scenarios.
-- At closing, the Cash Reserve has a balance of EUR 35.85 million equivalent to 3% of the Class A Notes, funded through the issuance of the Junior notes. The Cash Reserve will be replenished throughout the life of the deal to maximum of 3% of the outstanding notional of Class A notes at previous payment date and EUR 1 million. The Cash Reserve can start to amortise from second payment date according to the Priority of Payments.

• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.
-- Under the swap agreements, JPMorgan Chase Bank (as Guarantor), rated AA (low)/R-1 (middle) Stable by DBRS, will guarantee the obligations of J.P. Morgan Securities Ltd (as Swap Counterparty). J.P. Morgan Securities Ltd (a privately rated institution) will remain an eligible counterparty under the DBRS swap criteria if its long term rating does not fall below BBB. However, the swap agreements do not fully conform to DBRS criteria for mitigating counterparty credit risk. DBRS conducted additional stress scenarios in its cash flow model as a result, and will monitor the difference between DBRS swap criteria and the swap agreements.

• Review of the legal structure and operational capabilities of key transaction participants.
-- At closing, the transaction is not expected to have a Set-off Reserve Account, a Commingling Reserve Account, or a Prepayment Reserve Account. Lack of above mentioned risk mitigants were factored in DBRS’s analysis of the transaction.
-- Over the life of the transaction, Marche, as the Servicer, has the authority to modify the terms of the loans in the portfolio depending on the situation of the borrower. These modifications, or renegotiations, include reductions in interest rates, payment holidays, extension of the loan term, and switching from fixed to floating interest rates or vice versa at a lower level. However, these renegotiations will not necessarily be disadvantageous to the Issuer, as certain structural features will mitigate most of the risks and DBRS stressed the transaction parameters additionally to account for this.

• 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, on the 27th day of January, April, July and October. The First Payment Date will be 27 July 2012.

• 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 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, the Issuer and its agents.

Marche provided historical default and delinquency information based on the notional amount, not the number of loans. The data provided 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 standard of 90 days used by DBRS. However, DBRS used additional dynamic arrears data provided by Marche to determine conservative average annual default rate. 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’s 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 SME CLO(s), please see European Disclosure Requirements, located at http://www.dbrs.com/research/235269.

Lead Analyst: Mudasar Chaudhry
Rating Committee Chair: Jerry van Koolbergen
Initial Rating Date: 27 June 2012

Note:
All figures are in Euros unless otherwise noted.