DBRS Confirms Rating on Class A-2013 Notes of BPL Mortgages S.r.l., Series VI, Following Amendment

DBRS Ratings Limited (“DBRS”) has today confirmed the A (sf) rating on the EUR 1,901,267,551.00 Class A - 2013 Notes issued by BPL Mortgages S.r.l., Series VI (the “Issuer”).

The Issuer is a limited liability company incorporated under the laws of the Republic of Italy. The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian Small and Medium Sized Enterprises (“SMEs”) and self-employed individuals that were originated by Banco Popolare Soc. Coop. (“BP”) and by Credito Bergamasco S.p.A. (“Creberg”), both belonging to the BP Banking Group. Following fully acquisition of Creberg by BP, effective since 1 June 2014, BP is the successor to Creberg in its capacities.

The rating on the Class A - 2013 Notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in November 2056.

The rating action reflects an amendment to the original documents to:
1) Reduce the servicer minimum rating for the appointment of the back-up servicer from BB to B (high).
2) Reduce the rating triggers with reference to BP set out in clauses 21.1 and 21.2 of the Intercreditor Agreement – to put in place a set-off reserve loan and commingling reserve loan – from BBB to B (high).
3) Change the interest payment date frequency of the Notes from semi-annually to quarterly.
4) Open a replacement collection account with BNP Paribas Securitisation Services, London Branch (“BNP”), replacing the one previously with BP. The Transaction Bank for the purpose of Cash Reserve Account is still at BP.
5) Remove the claw back reserve as regulated in the original documents; this amount was at its cap, EUR 52,435,438, as of the last payment date.

The outstanding portfolio at the end of the last collection period (30 April 2014) is 74.2% of its initial balance. As a result, Class A-2013 Notes have been paying down and the current pool factor is 57.49%. Given this degree of deleveraging, the Notes benefit from a considerable increase in the credit enhancement, mitigating the added stresses of the items 1), 2) and 5) above.
BNP and BP meet the requirement of DBRS criteria to act in their respective roles as stated in item 4) above. Due to the structure of the transaction, Cash Reserve is available to cover senior expenses and interest shortfalls on the Class A - 2013 Notes throughout the life of the transaction. It will only be available as credit support when the Class A – 2013 Notes will be redeemed or at Final Maturity.

Claw Back reserve, that acted as a cash trap mechanism in the transaction, has been removed following application of the law decree “Destinazione Italia” (for more information, please refer to http://www.dbrs.com/research/264086/destinazione-italia-a-positive-change-for-italian-sme-clos-clawback-risk.pdf): prepayments in respect of securitized assets may not be declared ineffective pursuant to article 65 of the Bankruptcy Law in the 2 years prior to the borrower’s adjudication of bankruptcy. Although it is clear that this law applies to prepayments made on or after 24 December 2013, there is uncertainty with regards to if the law decree also applies to a scenario where the prepayment was made before 23 December 2013. Therefore and subject to interpretation, there is still a potential risk that might arise and as such a loss has been factored into the rating analysis.

Cumulative net defaults as defined in the transaction documents are at 3.91%. Our updated portfolio annualised probability of default (“PD”), calculated with the latest historical information received from BP, is 6.34%. This constitutes an increase in the PD that is driving higher hurdle rates obtained from DBRS Diversity Model. This is partially compensated for the lower weighted average life of the transaction, which has also been updated based on the latest information received. Class A - 2013 Notes also benefit from relatively high recovery rates due to the big portion of secured loans of the portfolio with a relatively low loan to value.

The current portfolio keeps exhibiting low borrower concentration, similar as at closing and despite of the significant amortization. High levels of industry concentration in the Real Estate and Construction sectors are in line with the initial portfolio and are addressed in DBRS Diversity Model.

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 6.34%, a 10% and 20% increase on the Base Case PD.
• Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 41.83% at the A (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 confirmation of the Class A - 2013 Notes at A (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 confirmation of the Class A - 2013 Notes at A (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 27 February 2014, when the rating of the Class A - 2013 Notes was confirmed and removed from under review with developing

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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

Initial Lead Analyst: Mudasar Chaudhry
Initial Rating Date: 12 March 2013
Initial Rating Committee Chair: Jerry Van Koolbergen

Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Simon Ross

DBRS Ratings Limited
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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”