DBRS Confirms Ratings to Creso 2 S.r.l.
RMBSDBRS Ratings Limited (“DBRS”) has reviewed Creso 2 S.r.l. (the “Issuer”) and confirmed the ratings of the Class A Notes at ‘A’ (sf).
Creso 2 S.r.l. is a securitisation of a portfolio of Italian residential mortgage loans originated and serviced by Cassa di Risparmio della Provincia di Chieti S.p.A. Each loan in the pool is secured by a first lien mortgage on a residential property located in Italy. The transaction follows the standard structure under the Italian Securitisation Law and closed in August 2012.
The mortgage pool is well-seasoned (just under six years) and it is geographically concentrated in the Abruzzo region (central Italy). In addition to the concentration risk, the transaction is also exposed to seismic risk. As a result, DBRS increased the Italian benchmark market value decline (MVD) assumptions to accommodate for these specific risk elements of the portfolio to the following levels for the respective rating scenario: 82.37% (AAA), 77.74% (AA), 70.71% (A), 63.54% (BBB), 56.51% (BB) and 49.48% (B).
Confirmation of the ratings for the Class A Notes is based upon the following analytical considerations, as described more fully below:
- Portfolio performance, in terms of delinquencies and defaults, as of the December 2013 payment date.
- Updated Portfolio Default Rate, Loss Given Default and Expected Loss for the remaining collateral pool.
- Current available credit enhancement to the Class A notes to cover the expected losses at the ‘A’ (sf) rating level.
As of the December 2013 payment date, the current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was 3.17%. This ratio increased from a value of 1.26% in March 2013. The current cumulative default ratio as a percentage of the original balance was very low at 1.03%.
Credit enhancement to the Class A Notes is provided by the subordination of the Class B Notes. The current credit enhancement for the Class A Notes is 33.99% and has increased from 26.98% since the initial rating. An initial cash reserve of EUR 13.15 million was funded at transaction close to cover interest shortfalls on the Class A Notes and senior fees and expenses. The balance of the cash reserve is equal to the current target level of EUR 11.53 million.
The Bank of New York Mellon (Luxembourg) S.A., Italian branch is the transaction bank for this transaction. The DBRS public rating of The Bank of New York Mellon (Luxembourg) S.A., Italian branch is at least equal to the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in the DBRS Legal Criteria for European Structured Finance.
Notes:
All figures are in Euro unless otherwise noted.
The principal methodology applicable is the Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.
This can be found on www.dbrs.com at:
http://www.dbrs.com/about/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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.
The sources of information used for this rating include investor reports provided by Zenith Services S.p.A. and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating was 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.
The last rating action on this transaction took place on 4 April 2013, when DBRS confirmed the ratings to the Class A Notes at ‘A’ (sf).
Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.
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”):
• DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
• The base case PD and LGD of the current pool of mortgages for the Issuer are 10.83% and 20.90%, respectively. At the ‘A’ (sf) rating level, the corresponding PD is 27.40% and the LGD is 49.79%.
• The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at ‘A’ (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to remain at ‘A’ (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating would be expected to remain at ‘A’ (sf).
Class A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of ‘A’ (sf)
• 50% increase in LGD, expected rating of ‘A’ (sf)
• 25% increase in PD, expected rating of ‘A’ (sf)
• 50% increase in PD, expected rating of ‘A’ (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of ‘A’ (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of ‘A’ (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of ‘A’ (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of ‘A’ (sf)
For further information on DBRS 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: Konstantine Pastras
Initial Rating Date: 1 August 2012
Initial Rating Committee Chair: Claire Mezzanotte
Last Rating Date: 2 April 2013
Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Quincy Tang
DBRS Ratings Limited
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London
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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
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations
Ratings
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