DBRS Confirms Rating on Class A Notes issued by UBI SPV BBS 2012 S.r.l. and Removes UR-Developing

DBRS Ratings Limited (“DBRS”) has today confirmed the A (low) (sf) rating on the EUR 644,600,000.00 Class A Notes issued by UBI SPV BBS 2012 S.r.l. (the “Issuer”) and has removed Under Review with Developing Implications.

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 Banco di Brescia S.p.A. (“BBS”), part of the UBI Banca group. Unione di Banche Italiane S.c.p.A. (“UBI Banca”) owns 100% of BBS. 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.

BBS 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 action reflects a material update to the methodology DBRS uses to rate and monitor CLOs backed by loans to European SMEs (see “Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)”, published 15 October 2013).

This methodology supersedes the previous methodology “Master European Granular Corporate Securitisations (SME CLOs)” published 14 June 2011 and the “Small and Medium Enterprise Loans” section of the “Master European Structured Finance Surveillance Methodology” published 5 December 2012.

This methodology (a) updates correlation assumptions, including a new DBRS Diversity Model that replaces the DBRS Large Pool Model, (b) brings recovery assumptions into line with those used in the large corporate credit CDO (for loans not secured by real estate) and EU RMBS (for loans secured by real estate) methodologies, (c) clarifies the methods of computation of the portfolio annualised probability of default (“PD”), and (d) incorporates the current DBRS Idealized Default Table.

As a result of these changes, the rating of the Class A Notes has been confirmed based upon the following analytical considerations:

• Portfolio performance, in terms of defaults and level of delinquencies, as of the 27 December 2013 Payment Date.
• Updated recovery rates, determined by considering the market value declines for Italy, the security level, and type of collateral.
• Updated PD for the Originator determined using the arrears data supplied at closing, and adjusted based on the performance and cumulative defaults observed during the life of the transaction.
• Updated correlation assumptions, based on the granularity of the current portfolio. The PD and portfolio weighted average life were used in the DBRS Diversity Model to generate the hurdle rates for the current portfolio.
• The break even rates for the interest rate stresses and default timings were determined using the DBRS Cash Flow Model.

Cumulative net defaults, as defined in the transaction documents, were at 3.14% as of the last payment date. The delinquency ratio as a percentage of the original balance at closing date was 2.90%. The recalculated PD has increased to 3.90%.

Despite the relatively high cumulative defaults and increase in the Base Case PD, the Class A Notes benefit an increase in the weighted average recovery rates due to our more favorable outlook on secured loans with a relatively low loan to value.

This 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”). Such Revolving Period will conclude on the next payment date (April 2014). Since closing, all the principal proceeds have been collected in a reinvestment account, and these collections have not been used to buy new collateral. BBS is currently working on an amendment to slightly revise the Transfer Limits, including a concentration limit relating to the pool indexation to 6M Euribor and lowering the limit relating to the minimum % of unsecured loans in the relevant portfolio in addition to a one off re-purchase by BBS of some loans from the Issuer.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is “Rating CLOs Backed by Loans to European Small and Medium Sized Enterprises (SMEs)”, which can be found on the DBRS website under Methodologies at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include the parties involved in the rating, including but not limited to the Originator, the Issuer and their agents.

DBRS considers the information made available to it for the purposes of providing this rating to have been of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• Probability of Default Rates Used: Base Case PD of 3.90%, a 10% and 20% increase on the Base Case PD.
• Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 45.73% at the A (low) (sf) stress level, a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that either a hypothetical increase of the base PD by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would produce model results suggesting a downgrade of the Class A Notes to BBB (high) (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the Recovery Rate by 10% would also lead to model results suggesting a downgrade of the Class A Notes to BBB (high) (sf).

It should be noted that the interest rates and other parameters that would normally vary with rating level, including the recovery rates, were allowed to change as per the DBRS methodologies and criteria.

The previous rating action on this transaction took place on 16 October 2013, when the rating of the Class A Notes was placed Under Review with Developing Implications.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com

For further information on DBRS’s historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml

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

Initial Lead Analyst: Simon Ross
Initial Rating Date: 30 October 2012
Initial Rating Committee Chair: Jerry Van Koolbergen

Most Recent Rating Update: 16 October 2013
Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry Van Koolbergen

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London, EC3R 7AA
United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

“Legal Criteria for European Structured Finance Transactions”
“Master European Structured Finance Surveillance Methodology”
“Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)”
“Rating Methodology for CLOs and CDOs of Large Corporate Credit”
“Cash Flow Assumptions for Corporate Credit Securitizations”
“Operational Risk Assessment for European Structured Finance Servicers”
“Unified Interest Rate Model for U.S. and European Structured Credit”
“Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”