DBRS Assigns Final Rating to Dominato Leonense S.r.l.

DBRS Ratings Limited (‘DBRS’) has assigned the following final ratings to the Class A notes issued by Dominato Leonenese S.r.l. (‘Issuer’).

Class A – EUR 137,800,000 Residential Mortgage Backed Securities - A (sf)

The Issuer is a limited liability company incorporated under the laws of the Republic of Italy in 2014.

The Class A notes are backed primarily by first lien, fully amortising mortgage loans originated by Cassa Padana – Banca di Credito Cooperativo (‘Originator’ ‘Cassa Padana’). The pool also contains loans originated by three other cooperative banks merged into Cassa Padana in the last four years. Most of the properties underlying the mortgage loans are in the region of Lombardia (58.09%) and Veneto (27.80%). The portfolio is considered granular with the average loan balance at approximately EUR 79,457. The transaction has a low weighted average current loan-to-value (LTV) ratio of approximately 49.60% (un-indexed) and a weighted average original LTV of approximately 65.35% (un-indexed). The portfolio is well seasoned with a weighted average seasoning of 5.31 years and a remaining life of 14.18 years.

As of 31 March 2014 (‘Transfer date’), the transaction portfolio consisted of 2,253 loans extended to 2,167 borrowers. The loans in the transaction are granted to individuals (Bank of Italy SAE code 600, 82.44%), artisans (SAE code 614, 6.61%) and small commercial borrowers (SAE code 615, 10.94%). The par balance of the loan portfolio at the Transfer date was EUR 179.1 million.

The originator and servicer of the transaction is Cassa Padana. The Back-up servicer is ICCREA Banca S.p.a. and Zenith Services S.p.a. has been appointed as a Backup servicer facilitator which will assist the Issuer in finding a substitute for the Back-up servicer in case that the one appointed needs to be replaced.

Credit enhancement for the Class A notes is 23%, provided by the subordination of the Class B notes. The reserve fund will be established through a limited recourse loan provided by the Originator at the issue date at approximately EUR 5.37 million (3.00% of the portfolio). The reserve fund cannot amortise during the life of the transaction and is available to pay the senior fees, the interest on the Class A Notes, to cover any shortfall in principal of the Class A notes with a floor of 1.00% and, at the date in which the Class A notes will redeem in full, to pay principal on the Class A notes.

The Class A notes pay interest of at three-month Euribor plus a margin of 20 bps. The coupon on the Class A notes is capped at 7.00%. The portfolio interest rate is mainly linked to six-month Euribor (approximately 52.11%) but also has exposure to three-month Euribor (approximately 24.17%), one-month Euribor (approximately 0.24%), ECB rate (approximately 0.33%) and fixed interest rates (approximately 18.14%). Finally, 5.01% of the portfolio is linked to ‘Rendistato’ rate. This index is fixed monthly by the Bank of Italy and it is based on the weighted average yield to maturity of the Italian government bond issued at that date for a predefined maturity. The transaction is unhedged. DBRS has modeled the interest rate mismatch between the interest rates on the assets and the interest rates paid on the Notes using its Unified Interest Rate Methodology.

The servicing agreement allows for a limited number of loans to be renegotiated. Loans that are currently paying floating rate can convert to fixed interest rate, and vice versa. Furthermore, on a limited basis, loans in the portfolio are allowed a spread reduction, an interest payment holiday or a maturity extension. DBRS has modelled the possible impact of these renegotiations in its cash flow analysis.

The ratings are based upon DBRS review of the following analytical considerations:

• Transaction capital structure and form and sufficiency of available credit enhancement.
• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to terms in which they have invested.
• The transaction parties’ capabilities with respect to originations, underwriting, servicing, and financial strength.
• 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.
• Incorporation of a sovereign related stress component in our stress scenario due to the rating assigned by DBRS to the Republic of Italy’s to ‘A (low)’ - Negative Trend.

DBRS credit analysis is performed on a loan-level basis and includes a probability of default and loss given default assessment, an originator and servicer specific historical performance review, an analysis of loan default data, a Italian housing market and property price trend evaluation. A cash flows analysis has been done based on the following assumptions:

• front- and back- loaded defaults and recoveries
• upward and downward interest rate scenarios
• prepayment rate assumptions at 0%, 5%, 10% and 20% CPR

DBRS assessed the two-year probability of default utilising Cassa Padana’s definition of defaults (sofferenze) as defined by the Bank of Italy.

Note:
All figures are in Euro unless otherwise noted.

The principal methodologies applicable are 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 working papers and data on the Italian economy and housing market provided by:, ECB, Eurostat, Bank of Italy, Nomisma, Istituto Nazionale di Statistica (ISTAT). DBRS conducted an operational review on the origination and servicing practices of Cassa Padana. The Originator provided loan-level data and historical performance of mortgage portfolio dating back to 2005. 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 extent of any factual investigation or independent verification depends on facts and circumstances.

This rating concerns to-be-issued financial instruments.

This is the first DBRS rating on these financial instruments.

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

To assess the impact of a change in the transaction parameters (probability of defaults and/or loss given default) on the rating of Class A Notes DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• In respect of Class A Notes and a rating category of “A (sf)”, the Probability of Default (“PD”) of 33.77%, a 25% and 50% increase on the PD.
• In respect of Class A Notes and a rating category of “A (sf)”, Loss Given Default (“LGD”) of 23.98%, a 25% and 50% increase on the LGD.

DBRS concludes that for the Class A Notes:
• A hypothetical increase of the PD by 25%, ceteris paribus, would lead to downgrade the Class A Notes to A(low) (sf).
• A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the Class A Notes to A (sf).
• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Class A Notes to BBB(high) (sf).
• A hypothetical increase of the PD by 50%, ceteris paribus, would lead to downgrade the Class A Notes to BBB(low) (sf).
• A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to maintain the Class A Notes to A (sf)
• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Class A Notes to BBB(low) (sf).
• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Class A Notes to BBB(high) (sf).
• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Class A Notes to BBB(low) (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: Davide Nesa
Initial Rating Date: 06/06/2014
Initial Rating Committee Chair: Quincy Tang
Initial Lead Surveillance Analyst: Elisa Scalco

Last Rating Date: Not applicable as this is a new rating.

DBRS Ratings Limited
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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
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