DBRS Assigns Rating to BPL Mortgages S.r.l. (BPL Mortgages) Notes

DBRS Ratings Limited (DBRS) has today assigned the rating of ‘A’ (sf) to the Class A notes issued by BPL Mortgages S.r.l. (BPL Mortgages, issuer). The Class A notes aggregate up to a notional of EUR2.585 billion, paying a margin of 0.30% over 1month Euribor. At closing of the transaction only EUR1.7 billion of the Class A notes will be paid up. DBRS assigned ratings only apply to the paid up amount of the Class A notes at any point in time.

The Class B notes, which are junior to the above classes of notes, are not rated by DBRS.

BPL Mortgages is the issuance of RMBS notes backed by first and second ranking mortgages, to borrowers in Italy, originated by Banco Popolare – Societa Cooperativa (Banco Popolare) and Credito Bergamasco S.p.A (Creberg) (together the originators). BPL Mortgages follows the standard structure under Italian securitisation law and closed on 21 December 2012.

As mentioned, on the initial issuance date, only part of the total notes issued will be paid-up (and will be fully backed by mortgage assets. The issuer has the right to purchase further assets, subject to conditions, before the first interest payment date. In such an event, a further up to EUR1.3 billion 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 risk of non-standard mortgage loans in the mortgage portfolio. Some of these mortgage products are not typical to Italian RMBS mortgage portfolios. Around 27% of the loans in the mortgage portfolio give the right to switch interest rate type from fixed to floating and vice versa (Optional Mortgages). Additionally, there are construction loans in the mortgage portfolio where the construction of the property may not yet be complete. The mortgage portfolio consists of ‘offset mortgages’ (2.745% of the mortgage portfolio) where a borrower does not pay interest up to the amount credited in a linked current account. There is a small proportion of agricultural mortgages (0.19% of the mortgage portfolio), credito agrario, included in the mortgage portfolio. Such mortgage products entail additional credit risk. DBRS has assessed the credit risk of these non-standard mortgage products on a conservative basis. The additional risky features are – around 34% of the loans have higher than 80% current loan to value ratio (CLTV), 27% of the loans are equity release mortgages and 3% of the loans are second lien with the prior charge with a bank other than the originator of the loans in this transaction These features distinguish the BPL Mortgages mortgage portfolio with higher credit risk from most others in Italian RMBS transactions.

BPL Mortgages is exposed to basis risk which is unhedged. While the interest on the notes is payable linked to 1month Euribor, the mortgages pay fixed or floating rates of interest and borrowers have the option to switch between fixed and floating. 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 liquidity for payment of interest on the rated notes is supported by a fully funded non-amortising reserve fund of EUR64 million available at close of the transaction. This reserve fund does not support losses arising from the mortgage portfolio.

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 and excess spread, if available. The Class A notes are supported by Class B subordinated notes (32% of total notes issued).
• 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 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 Structured Finance 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 from the originators, 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: Alessio Pignataro
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: December 21, 2012