DBRS Assigns Ratings to Estense S.M.E. S.r.l. Class A Notes

DBRS Ratings Limited (“DBRS”) has today assigned final ratings to the EUR 1,488.00 million Class A Asset Backed Floating Rate Notes (“the Class A Notes” or “the Notes”) issued by Estense S.M.E. S.r.l. (“the Issuer”).

The Issuer is a limited liability company incorporated under the laws of the Republic of Italy. The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian Small and Medium Sized Enterprises (“SMEs”) and self-employed individuals. The loans were mainly originated by Banca Popolare dell’Emilia Romagna Soc. Coop. (“BPER”), while a small percentage (6.39%) were originated by Cassa di Risparmio di Vignola S.p.A. and by Eurocredito Trentino S.p.A. which belonged to BPER Group.

The rating on the Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in December 2055. DBRS does not rate the Class B Asset Backed Variable Return Notes (the “Junior Notes”) with an aggregate total par balance of EUR 668.70 million.

The asset transfer documents were signed on 6 December 2012 based on a final portfolio chosen on 30 November 2012. As of 30 November 2012, the transaction portfolio consisted of 12,175 loans extended to 10,094 borrowers and borrower groups with a outstanding principal balance equal to EUR 2,118.79 million. As of 30 November 2012 97.82% of the portfolio was fully performing, while the remaining 2.18% was in arrears for no more than 30 days.

The transaction is well diversified by borrower exposure with the largest one, ten and fifty borrower groups representing 0.61%, 4.08%, and 14.70% of the outstanding portfolio balance, respectively. The portfolio exhibits high industry concentration in the Real Estate and Construction sectors and high regional concentration in Emilia-Romagna, which was addressed by applying a higher correlation in the analysis. The largest three industries (by NACE industry group) are Manufacturing, Real Estate and Construction, representing 24.28%, 23.91% and 15.08% of the outstanding portfolio balance, respectively. The top three regions represent 92.45% of the portfolio balance split between the regions of Emilia-Romagna (78.19%), Lombardia (8.44%) and Veneto (5.82%).

BPER will act as the Servicer for the Portfolio. Securitisation Services S.p.A will act as Back-up Servicer Facilitator since a Substitute Servicer will be appointed only upon termination of the appointment of the current Servicer .

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 absence of a cash-trapping mechanism, allowing leakage of excess spread to the Junior Notes in low defaults and back-loaded scenarios.
• 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 key transaction participants.
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 Senior 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 arising from unscheduled prepayments: for loans that do not qualify as “mutuo fondiario” or if the relevant borrower is not an “Individual”, the related prepayments are set aside for a maximum of two years.

The set-off risk in the transaction is mitigated by a deposit to be made by BPER within 30 days within the downgrade below BBB (low).

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 an amortizing Cash Reserve through the proceeds of the issuance of the Junior Notes. The Cash Reserve will have an initial balance of EUR 31.25 million with a floor at EUR 7.44 million and is available to cover senior expenses and interest shortfalls on the Class A Notes throughout the life of the transaction. The Cash Reserve will only be available as credit support when the Class A Notes will be redeemed or at final legal maturity.

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

The vintage performance data provided did not match the definition that DBRS bases its analysis on. The historical performance data was based on the 180 days past due definition of default which also included loans classified as “sofferenza”. Overall, 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: 17 December 2012

Note:
All figures are in Euros unless otherwise noted.