DBRS Downgrades Class A Notes of ResLoc IT S.r.l.

DBRS Ratings Limited (“DBRS”) has today downgraded the Class A notes of ResLoc IT S.r.l. to AA (low) (sf) from its previous rating of AA (high) (sf). DBRS has also removed the rating from Under Review - Negative. The notes are downgraded due to:
• Decrease in credit enhancement to the Class A notes when measured relative to the Adjusted Performing Portfolio Principal Balance (“APPPB”).
• Decrease in expected cash flows to cover expected losses as a result of modifications.
• Incorporation of a sovereign related stress component in the rating analysis to address the impact of macroeconomic variables on collateral performance.
• Inability of the notes to withstand expected losses at the respective rating category due to stressed cash flows.

The notes issued by ResLoc IT S.r.l. are backed a portfolio of below prime quality Italian residential loans originated and serviced by Fonspa Bank. At the initial rating date in June 2011, credit enhancement to the Class A notes was 22.43% when measured relative to the APPPB. The credit enhancement is has decreased to 21.86% (as of December 2012) as a result of insufficient cash flows to cover defaults.

The servicer has been active modifying loans in the portfolio through either a suspension of arrears, change of loan terms or interest rate reductions. Although they may have the reduce near term defaults, the modifications affect the current cash flows as borrowers may return to near term delinquent status and further delaying recoveries.

DBRS updated the Portfolio Default Rate (“PDR”) and Loss Given Default (“LGD”) of the portfolio based on an updated loan file provided by the Fonspa Bank. The performing balance (loans less than 6 months delinquent) and defaulted balance were analysed separately as the PDR of the defaulted balance is assumed to be 100%. DBRS further analyzed the transaction structure cash flows with the standard Italian cash flow stresses from the Master European Residential Mortgage-Backed Securities Rating Methodology. To stress for the high level of delinquencies in the portfolio and high level of modifications, DBRS further stressed the cash flow analysis by assuming a constant delinquency rate of 15%.

The swap counterparty for the transaction is Morgan Stanley & Co. International plc. The Account Bank is Citibank, N.A London Branch. Both entities comply with the DBRS counterparty criteria given the ratings of the notes.

Notes:
All figures are in euros unless otherwise noted.

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

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 sources of information used for this rating include a loan level collateral file and quarterly investor reports provided by the issuer. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

For additional information on this rating, please see the linking document.

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

Lead Analyst: Keith Gorman
Rating Committee Chair: Quincy Tang
Initial Rating Date: 7 June 2011
Most Recent Rating Update: 2 January 2013