DBRS Assigns Final Ratings to Mars 2600 S.r.l. Series 5

DBRS Ratings Limited (‘DBRS’) has assigned the following ratings to the Class A1 and Class A2 notes (together, the Class A notes) issued by Mars 2600 S.r.l. (‘Issuer’).

Class A1 – EUR 216,000,000 Residential Mortgage Backed Securities - AA (sf)
Class A2 – EUR 216,000,000 Residential Mortgage Backed Securities - AA (sf)

The Issuer is a limited liability company incorporated under the laws of the Republic of Italy in 2004. This is the fifth series of notes issued by Mars 2600 S.r.l.

The Class A notes are backed primarily by first lien, fully amortising mortgage loans originated by Banca Sella S.p.a (‘Originator’ ‘Banca Sella’). Approximately 44.67% of the properties underlying the mortgage loans are located in the region of Piemonte. The portfolio is considered granular with the average loan balance at approximately EUR 74,873. The transaction has a low weighted average current loan-to-value (LTV) ratio of approximately 45.75% (un-indexed) and a weighted average original LTV of approximately 57.30% (un-indexed).

As of 31 March 2014 (‘Transfer Date’), the transaction portfolio consisted of 6,531 loans extended to 6,418 borrowers. All the loans in the transaction are granted to borrowers –that are individuals (Bank of Italy SAE code 600). The par balance of the loan portfolio at the Transfer Date was approximately EUR 487 million.

The originator and servicer of the transaction are Banca Sella. There is no Backup servicer in the transaction, however, Securitisation Services S.p.a. has been appointed as a Backup servicer facilitator which will assist the Issuer in finding a substitute servicer in the event that Banca Sella needs to be replaced as the servicer of the mortgage portfolio.

Credit enhancement for the Class A notes is 11.4%, provided by the subordination of the Class D notes. The reserve fund will be established through an over issuance of the class D notes at approximately EUR 9.779 million (2.26% of the collateralised notes). The reserve fund can amortise during the life of the transaction to 4.52% of the outstanding Class A notes only if the follow conditions will be met: (i) the outstanding amount of the Class A notes is below 50% of the original outstanding amount and (ii) the cumulative net default ratio is below 3.00%. The reserve fund has a floor at EUR 2.16 million. The reserve fund is available to pay the senior fees, the interest on the Class A Notes and at the date in which the Class A notes will redeem in full, to pay principal on the Class A notes.

The Class A1 notes pay interest of at three-month Euribor plus a margin of 130 bps while the Class A2 notes pay a fixed interest rate of 1.80%. The Class A notes have a step-up coupon at the payment date falling on 25th July 2022. The portfolio interest rate is mainly linked to one-month Euribor (approximately 42.37%) but also has exposure to three-month Euribor (approximately 18.58%), six-month Euribor (approximately 2.6%), ECB rate (approximately 3.86%) and fixed interest rates (approximately 32.60%). Approximately 20.53% of the floating rate loans have a cap on their interest rate. The transaction is unhedged. DBRS has modeled the interest rate mismatch between the interest rates on the assets and interest rate paid on the Notes using its Unified Interest Rate Methodology.

The servicing agreement allows for a limited number of loans, 15% of the portfolio, to be renegotiated. The renegotiations can be related to spread/interest rate/cap reduction. Maturity extensions until five years after the original maturity of the loans are also allowed. DBRS has modelled the possible impact of these renegotiations in its cash flow analysis.

In the context of an amendment of the Italian Securitisation Law 130/99, the transaction documents allow for opening a new collection account (called ‘segregated account’), in the name of the servicer/sub-servicer provided that this is done in accordance with the Securitisation Law and in such a way that it will not result in the downgrade of the rated notes. The intention of inclusion of such a potential change in the documents at the outset is to enable the Issuer to implement the change on the accounts by a notification and without specific approval of the representative of noteholders at such time in the future. The impact of such a change to the servicer accounts in light of the amended Italian Securitisation Law and any future related clarifications, upon counterparty and/or commingling risk and ultimately the ratings of notes issued under this transaction, will be assessed by DBRS at that point in time.

Please refer to DBRS commentary on the new Italian Securitisation Law 130/99 by clicking at the url below:

http://dbrs.com/research/267464/dbrs-comments-on-risks-inherent-to-italian-obg-and-on-amendments-to-italian-law-130-99.pdf

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 assumption at 0%, 5%, 10% and 20% CPR

DBRS assessed the two year probability of default, utilising Banca Sella’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 Banca Sella. The Originator provided loan-level data and historical performance of mortgage portfolio dating back to 2001. 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 A1 Notes and Class A2 Notes, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• In respect of Class A1 Notes and a rating category of “AA (sf)”, the Probability of Default (“PD”) of 27.48%, a 25% and 50% increase on the PD.
• In respect of Class A1 Notes and a rating category of “AA (sf)”, Loss Given Default (“LGD”) of 23.21%, a 25% and 50% increase on the LGD.
• In respect of Class A2 Notes and a rating category of “AA (sf)”, the Probability of Default (“PD”) of 27.48%, a 25% and 50% increase on the PD.
• In respect of Class A2 Notes and a rating category of “AA (sf)”, Loss Given Default (“LGD”) of 23.21%, a 25% and 50% increase on the LGD.

DBRS concludes that for both the Class A1 and the Class A2 Notes:
• A hypothetical increase of the PD by 25% would lead to downgrade the Class A1 Notes to A(sf).
• A hypothetical increase of the LGD by 25% would lead to downgrade the Class A1 Notes to AA(low) (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 A1 Notes to A(low) (sf).
• A hypothetical increase of the PD by 50% would lead to downgrade the Class A1 Notes to BBB(high) (sf).
• A hypothetical increase of the LGD by 50% would lead to downgrade the Class A1 Notes to A(high) (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 A1 Notes to BBB(high) (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 A1 Notes to A(low) (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 A1 Notes to BBB (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: 06/12/2014
Initial Rating Committee Chair: Quincy Tang
Initial Lead Surveillance Analyst: Dylan Cissou

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