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

DBRS Ratings Limited (“DBRS”) has downgraded the Class A Notes (the “Notes”) issued by Resloc IT S.r.l. (the “Issuer”) to A (high) (sf) from the previous rating of AA (low) (sf) following a review of the Issuer. The downgrade of the Notes is based upon the following analytical considerations:
• Decrease in credit enhancement to the Notes when measured relative to the Adjusted Performing Portfolio Principal Balance (“APPPB”).
• Increasing trend in delinquencies on the underlying portfolio.
• 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 current rating category due to stressed cash flows.

The Notes are backed by a portfolio of below prime quality Italian residential loans originated and serviced by Credito Fondiario (formerly Fonspa Bank). At the initial rating date in June 2011, credit enhancement to the Notes was 22.43% when measured relative to the APPP. Prior to the previous downgrade of the Notes in February 2013, credit enhancement had decreased to 21.86% (as of December 2012) as a result of insufficient cash flows to cover defaults. Credit enhancement has further declined to 19.97% (as of the March 2014 payment date) as the performance of the portfolio has continued to deteriorate.

Total delinquencies greater than 30 days in the portfolio (as a percentage of the APPPB) are trending upward and are at a high of 16.10% versus 10.11% in December 2012. Delinquencies greater than 90 days are also trending upward and at a high of 7.33% versus 4.12% in December 2012. Cumulative defaults are currently 11.43%.

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 the modifications may have reduced near term defaults, the modifications affect the current cash flows as borrowers may return to near term delinquent status and further delaying recoveries. Additionally, interest rate reductions reduce the interest income generated on the portfolio.

DBRS updated the Portfolio Default rate (“PD”) and Loss Given Default (“LGD”) of the portfolio based on an updated loan file from the European DataWarehouse. DBRS further analysed the transaction 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 Weighted Average Coupon on the portfolio was also reduced by 25 basis points to account for future interest rate reductions.

The swap counterparty for the transaction is Morgan Stanley & Co. International plc. The Account Bank is Citibank, N.A. London Branch. The DBRS private ratings of each entity is above the Minimum Institution Rating given the rating of the Notes as detailed in the Derivative Criteria for European Structured Finance Transactions and Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euro unless otherwise noted.
The principal methodology applicable is Master European Structured Finance Surveillance Methodology.

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 remittance reports received from Citibank, N.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 the rating on the Class A Notes was confirmed.

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 19.19% and 27.60%, respectively. At the A (low) (sf) rating level, the corresponding PD is 39.77% and the LGD is 41.45%.
• The Risk Sensitivity overview below illustrates the ratings expected if the LD 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 be lowered to BBB (high) (sf), all else equal. If the PD increases by 50%, the rating for the Class A Notes would be expected to be lowered to BBB (high) (sf), all else equal. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to lowered to BB (sf).

Class A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of A (low) (sf)
• 50% increase in LGD, expected rating of BBB (high) (sf)
• 25% increase in PD, expected rating of A (sf)
• 50% increase in PD, expected rating of BBB (high) (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Keith Gorman
Initial Rating Date: 7 June 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Keith Gorman
Rating Committee Chair: Claire Mezzanotte

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
Derivative 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