DBRS Confirms Rating on the Class A Notes Issued by UBI SPV BPA 2012 S.r.l. and Removes UR-Negative

DBRS Ratings Limited (“DBRS”) has today confirmed and removed from Under Review with Negative Implications the A (low) (sf) rating on the EUR 597,672,702.35 Class A Notes issued by UBI SPV BPA 2012 S.r.l. (the “Issuer”).

The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian Small and Medium Sized Enterprises (“SMEs”), which were originated by Banca Popolare di Ancona S.p.A. (“BPA”), part of the UBI Banca group. Unione di Banche Italiane S.c.p.A. (“UBI Banca”) owns approximately 93.02% of BPA. The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in October 2057.

BPA acts as the Originator, Sub-Servicer, Subordinated Loan Provider, PDL Subordinated Loan Provider and Set-Off Subordinated Loan Provider. UBI Banca is the Servicer, Italian Account Bank and Calculation Agent. The Bank of New York Mellon, London Branch acts as the English Account Bank and Cash Manager, while the Bank of New York Mellon, (Luxembourg) S.A., Italian Branch is the Paying Agent. BNY Mellon Corporate Trustee Services Limited acts as Representative of Noteholders.

The rating action reflects a review of the transaction after the end of the 18-month reinvestment period (the “Revolving Period”) on April 2014, during which principal cash flows could be used to acquire new loans according to specific criteria (“Transfer Limits”).
Prior to this payment date, BPA finalized an amendment slightly revising the Transfer Limits, including a concentration limit relating to the pool indexation to 6M Euribor in addition to a one off re-purchase by BPA of some loans from the Issuer.
The rating was placed Under Review with Negative Implications while determining the impact of the amendment and the cash reinvestment back into performing collateral, along with the higher than expected cumulative defaults and an increase in our portfolio annualized probability of default (“PD”) (please refer to http://www.dbrs.com/research/265499/dbrs-confirms-removes-from-ur-dev-and-places-ur-neg-rating-on-class-a-notes-of-ubi-spv-bpa-2012-s-r-l.html for more information).

Before the end of the Revolving Period, there were EUR 380MM sitting in the Principal Investment Account held by the English Account Bank. Based on the information received, EUR 62MM of this amount has gone to amortize the Notes and EUR 318MM to acquire new loans according to the Transfer Limits. In addition to that, EUR 50MM coming from collections in the last collection period (1 March 2014 to 31 May 2014) were also allocated to pay down the Notes at the July payment date. Although most of the amount of the Investment Account went to acquire new loans, there is still some deleveraging of the Notes that result in an increase in the credit enhancement, enough to cover the expected losses at the A (low) (sf) rating level.

As part of our surveillance process, we will keep closely monitoring the performance of the transaction, that is in line with our last full review of the deal (please refer to www.dbrs.com for more information) and therefore is showing relatively high levels of gross cumulative defaults, as per the default definition in the transactions documents, at 6.01% of the initial balance at closing (based on data reported at the July payment date). The percentage of loans in arrears for more than 90 days over the original balance at the closing date is also relatively high, 6.01% as well. Nevertheless, the end of the Revolving Period means that the Notes will continue amortising in following payment dates, with an expected increase in the credit enhancement given by this deleveraging of the Notes and expected to be enough to withstand the current upwards trend of defaults in the transaction.

We have re-run DBRS Diversity Model based on the current composition of the static pool data. The results benefit from an updated lower Weighted Average Life of the Portfolio. The PD used has not changed (5.84%). DBRS Cash Flow Model has also been updated to reflect the most recent payment date report information.

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 5.84%, a 10% and 20% increase on the Base Case PD.
• Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 30.69% at the A (low) (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 downgrade of the Class A Notes to BBB (high) respectively. 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 downgrade of the Class A Notes to BBB (high) (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 4 June 2014, when the Under Review with Negative Implications status on the rating of the Class A Notes was extended.

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

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

Initial Lead Analyst: Simon Ross
Initial Rating Date: 30 October 2012
Initial Rating Committee Chair: Jerry Van Koolbergen

Most Recent Rating Update: 4 June 2014
Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry Van Koolbergen

DBRS Ratings Limited
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London, EC3R 7AA
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”
“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”