DBRS Confirms Rating on Valsabbina SPV 1 S.r.l. Following Restructure

DBRS Ratings Limited (DBRS) has today confirmed its rating of AAA (sf) on the Class A Notes issued by Valsabbina SPV 1 S.r.l. (Issuer) following the purchase of an additional mortgage portfolio funded via an increase of the Class A Notes. Post-restructure the outstanding balance of the Class A Notes has increased from €108,114,416.55, as of the October 2014 payment date, to €256,706,358.57.

The Issuer purchased an additional portfolio of mortgage loans with an outstanding balance equal to €151,510,604.12. The absolute amount of the reserve fund has also increased to €12,835,317.93, also funded via an increase the Class A Notes. In comparison to the initial assignment of the rating in January 2012, the credit enhancement available to the Class A Notes and the reserve fund as a percentage of the Class A Notes has reduced. The Class A credit enhancement calculated by DBRS is 28.4% of the note balance and consists of subordination of the Class B Notes and overcollateralisation. At assignment of the initial ratings, the Class A credit enhancement was 29.93%. The credit enhancement levels are exclusive of the reserve fund as it is only available to provide liquidity support to the rated notes. Post-restructure the reserve fund represents 5% of the outstanding Class A Note balance whereas the initial reserve fund balance in January 2012 was equal to 7.14% of the outstanding Class A Note balance.

The outstanding balance of total mortgage portfolio post-purchase is €358,441,957 and comprises first ranking Italian residential mortgage loans originated by Banca Valsabbina S.C.p.A (96.30%) and Credito Veronese S.p.A (3.70%) (the Originators). Although Banca Valsabbina acquired control of Credito Veronese in April 2011, the mortgage loans classified as originated by Credito Veronese have been originated under different criteria relative to Banca Valsabbina originations.

The portfolio is moderately seasoned at 57.6 months with a Weighted Average Current Loan to Value of 52.63%. The weighted-average interest rate of the mortgage portfolio is 2.76%, with 7.35% of the mortgage portfolio paying a fixed rate of interest. 92.65% of the portfolio pays a floating interest rate linked to the 3-month Euribor (92.21%), 6-month Euribor (0.23%) and ECB rate (0.17%). Additionally, 15.28% of the mortgage portfolio has a cap on the interest rate payable. DBRS calculates the weighted-average capped rate at 6.23%. The potential basis and interest rate risk is unhedged. However, there are mitigants available in the form of the reserve fund and the 8% interest rate cap on the Class A Notes.

The Confirmation of the Class A Notes is based upon the following analytical considerations:

• The transaction cash flow structure and form and sufficiency of available credit enhancement. Credit enhancement available to the Class A Notes is in the form of subordination of the Class B Notes and overcollateralisation. Post-restructure DBRS calculated the credit enhancement of the Class A Notes at 28.4%.

Liquidity coverage is provided via the aforementioned reserve fund which is available to meet payment shortfalls on the senior fees and Class A interest. Post-restructure DBRS calculates the reserve balance to equal 5% of the rated notes.

• The credit quality of the total mortgage portfolio which secures the Class A Notes and the ability of the servicer to perform collection activities. DBRS calculated updated probability of default, loss given default and expected losses outputs on the total portfolio. The following modelling assumptions were applied by DBRS: mortgage borrowers were treated as self-certified due to insufficient income information, the concentration of second homes (15%) and loans granted for a purpose other than purchase of a property (30%) were modelled in accordance with the representations and warranties provided by the originator.

Based on updated historical performance data provided, DBRS stressed the losses on the portfolio via an increase to the base case market value decline (MVD) assumptions at each rating level by a multiple of 1.2.

• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents. The transaction cash flows were modelled using updated portfolio default rates and loss given default outputs for the total mortgage portfolio provided by the DBRS default model. Other than amendments to the tranche sizing and reserve fund balance all other structural features remain unchanged from the assignment of the original rating.

• 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. The purchase of the additional portfolio and further issuance of the Class A Notes has been approved by the Issuer, noteholders and all other relevant counterparties to the transaction.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is:

Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2015)

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 includes Banca Valsabbina S.C.p.A and its agents. 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 June 9th 2014, where the rating on the Class A Notes were confirmed following a surveillance review.

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):

The Probability of Default (PD) of 40.77% and Loss Given Default (LGD) of 55.40% corresponding to a AAA rating scenario, were stressed assuming a 25% and 50% increase on the base case PD and LGD.

DBRS concludes the following impact on the rated notes:

• A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf)
• A hypothetical increase of the LGD by 50%, ceteris paribus, would lead a downgrade of the Class A Notes to AA (high) (sf).
• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (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: Alessio Pignataro
Initial Rating Date: 31 January 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Analyst: Asim Zaman
Rating Committee Chair: Quincy Tang
Lead Surveillance Analyst: Elisa Scalco

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

Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Legal Criteria for European Structured Finance Transactions
Operational Risk Assessment for European Structured Finance Servicers
Unified Interest Rate Model for European Securitisations