DBRS Assigns Ratings to BPL Mortgages S.r.l., Series VI, Class A - 2013 Notes

DBRS Ratings Limited (“DBRS”) has today assigned a final rating to the EUR 3,307.30 million Class A - 2013 Asset Backed Floating Rate Notes due 2056 (“the Class A Notes” or “the Notes”) issued by BPL Mortgages S.r.l. (“the Issuer”).

The Class B – 2013 Asset Backed Notes due 2056 are junior to the Class A Notes and are not rated by DBRS.

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. 82.07% of the portfolio is granted by Banco Popolare Soc. Coop. (“BP”) and 17.93% is granted by Credito Bergamasco S.p.A. (“Creberg”), both belonging to the BP Banking Group. The majority of the loans in the portfolio were originated by Banca Popolare di Verona, Banca Popolare di Novara, Banca Popolare di Lodi, Banca Popolare di Cremona, Banca Popolare di Crema and Cassa di Risparmio di Lucca Pisa e Livorno, which are part of the BP Banking Group at the time of the origination of the loans, and have been fully merged into BP in 2012.

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 November 2056. DBRS does not rate the Class B - 2013 Asset Backed Notes (the “Junior Notes”) which have an aggregate total par balance of EUR 1,942.48 million.

The asset transfer documents were signed on 22 February 2013, based on a final portfolio chosen on 17 February 2013. As of 17 February 2013, the transaction portfolio consisted of 48,884 loans extended to 41,736 borrowers and borrower groups, with an outstanding principal balance equal to EUR 5,249.23 million. As of 17 February 2013, 5.36% of the portfolio was in arrears for up to 31 days.

The transaction is well diversified by borrower exposure, with the largest one, ten and fifty borrower groups representing 0.40%, 3.10%, and 9.44% of the outstanding portfolio balance, respectively. The portfolio exhibits high industry concentration in the Real Estate and Construction sectors, 49.96% of the portfolio balance, which was addressed by applying a higher correlation in the analysis. The largest three industries (by NACE industry group) are Real Estate, Construction, and Manufacturing, representing 26.89%, 23.07%, and 21.58% of the outstanding portfolio balance, respectively. The top three regions represent 62.15% of the portfolio balance, split between the regions of Lombardy (36.34%), Veneto (13.17%), and Tuscany (12.64%).

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, and the portfolio characteristics.
• A cash-trapping mechanism which will not allow any junior payments until the Class A Notes are redeemed in full.
• 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 semi-annually.
• 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 with a cap of EUR 52.43 million 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.

A Set-off Reserve Account will be put in place once the rating of either BP or Creberg falls below BBB. The reserve will be equal to EUR 50.00 million, which represents 24.69% of the current set-off exposure if only 90% credit is given to the Deposit Guarantee Scheme and derivative exposure is stressed.

BP and Creberg will act as the Servicers for their respective part of the portfolio. The commingling risk in the transaction is mitigated by a Commingling Reserve Account which will cover one interest payment on the Class A Notes and senior fees due on the next payment date once the rating of the Servicers falls below BBB. In addition, a Back-Up Servicer will be appointed once the rating of the Servicer is downgraded below BB. Securitisation Services S.p.A will act as a Back-Up Servicer Facilitator in order to help the Issuer in finding a Back-Up Servicer and/or a Substitute Servicer.

The total Cash Reserve balance will be EUR 157.49 million. The Originator has partially funded the non-amortizing Cash Reserve with an amount of EUR 151.00 million through the proceeds from the Subordinated Loan. The remainder of the Cash Reserve is funded by the collections under the loans between the Valuation Date (17 February 2013) and the Signing Date (8 March 2013). DBRS views funding of the Cash Reserve through collection under the Loans as under collateralisation and has taken this into account in the cash flow modelling. Cash Reserve 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 Maturity.

DBRS is concerned about the information available to it for the purposes of providing this rating. The source of our concern is the historical information provided for DBRS to determine the average annual default rate of corporate borrowers which is a key input parameter in DBRS analysis, and is derived by DBRS from information provided by BP and Creberg. The Originators provided limited historical default and delinquency information based on the notional amount and number of loans (which also included loans classified as “sofferenza”), but this did not match the definition and form that DBRS bases its analysis on.

However, the Originators did supply additional arrears information incorporating the notional in arrears as a dynamic running balance of their books. DBRS was therefore able to use this data to analyse the historical performance of the Originators. As a result, this data provided by BP and Creberg is considered to be of average quality and was adjusted for DBRS’s analysis to account for the quality of information. Overall, DBRS considers the other information available to it for the purposes of providing this rating was of satisfactory quality.

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

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 CLOs, please see European Disclosure Requirements, located at http://www.dbrs.com/research/235269.

Lead Analyst: Mudasar Chaudhry
Rating Committee Chair: Jerry van Koolbergen

Note:
All figures are in Euros unless otherwise noted.