DBRS Assigns Rating to Padovana RMBS S.r.l. (Padovana RMBS) Notes

DBRS Ratings Limited (DBRS) has today assigned the rating of ‘A’ (sf) - Under Review with Negative Implications to the Class A notes issued under Padovana RMBS S.r.l. (Padovana RMBS, issuer). The Class A notes aggregate up to a notional of EUR291,600,000, paying a margin of 0.30% over 6 months Euribor.

The Class B notes, which are junior to the above classes of notes, are not rated. DBRS assigned ratings only apply to the paid up amount of the notes. As at the initial issuance date, EUR156.3 million of the Class A notes will be paid up.

Padovana RMBS is the issuance of RMBS notes backed by first and second ranking mortgages, to prime borrowers in Italy, originated by Banca Padovana Credito Cooperativo S.c. (Banca Padovana). Padovana RMBS follows the standard structure under Italian securitisation law and closed on 25 July 2012.

On the initial issuance date, only part of the total notes issued will be paid-up (Aggregating EUR195.39 million) and will be fully backed by mortgage assets. The issuer has the right to purchase further assets, subject to conditions, before the second interest payment date. In such an event, a further up to EUR169.22 million of notes issued are expected to be paid-up. DBRS has assessed the initial mortgage portfolio and stressed the expected losses based on the conditions for purchase of new loans.

The issuer is exposed to concentration risk as most of the loans are secured by properties located in the Veneto region. Approximately 84% of the properties securing the loans are in the province of Padova. DBRS has adjusted its market value decline (MVD) assumptions to account for potentially higher house price declines and distressed sale discount.

Padovana RMBS is exposed to basis risk which is unhedged. This basis risk is partially mitigated by an interest rate cap of 6.3% on Class A notes. While this would be the case in the rising interest rate scenario, DBRS has also tested the cash flows in declining interest rate scenario which ignores the effect of the interest rate cap. DBRS has applied interest rate stresses, per its Unified Interest Rate Methodology, to the cash flows on the assets and the liabilities to simulate the basis risk exposure on the notes to test the timely payment of interest on the rated notes.

The rating is based upon review by DBRS of the following analytical considerations:

• The transaction’s capital structure and the form and sufficiency of available credit enhancement. Relevant credit enhancement is in the form of subordination, a reserve fund and excess spread. The Class A notes are supported by Class B subordinated notes (20.03% of total notes issued) and an initial cash reserve of 3.21% of the paid-up notes. In the event that the unpaid portion of the notes, at close, are paid-up, the cash reserve can potentially go down to 0.42% of the total paid-up notes. The liquidity for the Class A notes is supported by an amortising liquidity reserve, 3.5% of the Class A notes outstanding. The amounts released from the amortising liquidity reserve will increase the balance of the cash reserve. In addition, the principal receipts from assets can also be used to meet any shortfalls in payment of senior fees and interest on Class A notes.
• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents.
• The transaction parties’ capabilities with respect to originations, underwriting, servicing, and financial strength.
• The credit quality of the mortgages backing the notes and the ability of the servicer to perform collection activities on the collateral. The Padovana RMBS mortgage portfolio is comprised of performing loans with only 2.36% of the loans currently in arrears (less than 30 days). The weighted average loan-to-value (WALTV) of the mortgage portfolio (as calculated by DBRS) is at 59.9% (54.38% unadjusted). DBRS has adjusted the MVD assumptions to account for the concentration risk of the mortgage portfolio.
• The back-up servicing arrangement to mitigate servicing disruption.
• The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

Note:
All figures are in EUR unless otherwise noted.

The principal methodologies applicable are:
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Legal Criteria for European Structured Finance Transactions
• Operational Risk Assessment for European RMBS Servicers
• Unified Interest Rate Model Methodology for European Securitisations

These can be found on dbrs.com under Methodologies. For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area”.

The data and sources of information used for this rating include data relating to historical performance and recoveries from Banca Padovana, and performance history of publicly rated Italian RMBS deals. House prices’ statistics maintained by Nomisma, Italy. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is a newly created financial instrument.

This is the first DBRS rating on this financial instrument.

For additional information on these ratings, please refer to the linking document.

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

Lead Analyst: Kali Sirugudi
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: July 25, 2012