DBRS Assigns Ratings to the UBI SPV BPCI 2012 S.r.l.

DBRS Ratings Limited (“DBRS”) has today assigned a rating of A (low) (sf) to the EUR 575.60 million Class A Asset Backed Floating Rate Notes (the “Class A Notes”) issued by UBI SPV BPCI 2012 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 Popolare di Commercio e Industria S.p.A. (“BPCI”), part of the UBI Banca group. Unione di Banche Italiane S.c.p.A. (“UBI Banca”) owns approximately 75.08% of BPCI. 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 2057. DBRS does not rate the EUR 277.10 million Class B Asset Backed Variable Rate Notes (the “Junior Notes”).

The asset transfer documents were signed on 26 June 2012 and amended on the Issue Date. As of the 1 June 2012 (the “Cut-Off Date”), the transaction portfolio consisted of the aggregate of 9,712 loans extended to 8,062 individual borrowers or borrower groups, with a par balance of EUR 852.76 million, net of loans repurchased before the Issue Date. The transaction includes an 18-month reinvestment period (the “Revolving Period”), during which principal cash flows will be used to acquire new loans according to specific criteria (“Transfer Limits”). In addition, the Revolving Period will end if certain performance conditions are breached (“Purchase Termination Events”).

BPCI acts as the Originator, Sub-Servicer, Subordinated Loan Provider, PDL Subordinated Loan Provider and Set-Off Subordinated Loan Provider. UBI Banca is the Servicer, Italian Account Bank and Calculation Agent. The Bank of New York Mellon, London Branch acts as the English Account Bank and Cash Manager, while the Bank of New York Mellon, (Luxembourg) S.A., Italian Branch is the Paying Agent. BNY Mellon Corporate Trustee Services Limited acts as Representative of Noteholders.

The rating of the Class A Notes is based upon DBRS’s review of the following items:

• The transaction structure, the form and sufficiency of available credit enhancement, the portfolio characteristics, the adequacy of the Eligibility Criteria and the Purchase Termination Events.
• A cash-trapping mechanism which prevents any junior payments being made until the Class A Notes are redeemed in full.
• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting, and servicing practices.
• An assessment of the operational capabilities of the key transaction participants.
• The ability of the transaction to withstand stressed cash flow assumptions and repay noteholders according to the approved terms. Interest and principal payments on the Class A Notes will be made quarterly.
• The soundness of the legal structure and the 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 structure has a cash trapping mechanism to mitigate claw-back risk coming from unscheduled prepayments: if a loan does not qualify as “mutuo fondiario”, the related prepayments are set aside for two years.

The transaction has a dedicated dynamic reserve to cover for set-off risk, up to a maximum of EUR 31,200,000. This Reserve will be posted if the DBRS Rating of UBI Banca falls below BBB (low) or if UBI Banca holds less than 51% of BPCI shares. It should be noted that (i) the set-off risk can increase during the Revolving Period as new loans are purchased by the Issuer, and (ii) part of the set-off exposure is due to the mark to market (“MtM”) of derivative contracts, and there is no legal comfort that the potential set-off exposure will amortise post crystallization, given that the MtM could fluctuate over time.

The transaction does not have segregated mitigants dedicated to commingling risk. This was factored into DBRS’s analysis of the transaction.

The Originator has funded the Cash Reserve through the proceeds of the Subordinated Loan. The Cash Reserve will have an initial balance of EUR 26,285,200 and will be maintained at the lesser of (i) the sum of (a) EUR 16,500,000 and (b) 1.7% (the “Cash Reserve Percentage”, which will increase during the transaction) of the outstanding balance of the Class A Notes, and (ii) 8.0% of the outstanding balance of the Class A Notes. These funds will be deposited in the reserve account opened with the English Account Bank. Prior to the delivery of a Enforcement Notice, the Cash Reserve is available to cover senior expenses and interest shortfalls on the Class A Notes for as long as the Class A Notes are outstanding.

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.

DBRS considers the information available to it for the purposes of providing this rating was, overall, of average quality. DBRS adjusted its analysis to account for the type of information provided. The source of concern revolves around 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 the Originators. The Originator provided historical default and delinquency information based on both the number and balance of loans that have defaulted on loans originated since 2005. The definition of default used by the Originator is that specified by the Bank of Italy, sofferenza, which does not match the definition that DBRS bases its analysis on, which is the European Central Bank standard of 90 days. An allowance was made for this in the DBRS analysis.

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: Simon Ross
Rating Committee Chair: Jerry van Koolbergen
Initial Rating Date: 30 October 2012

Note:
All figures are in Euros unless otherwise noted.