DBRS Confirms Ratings on the Class A2A and Class A2B Notes Issued by Quadrivio SME 2014 S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the notes issued by Quadrivio SME 2014 S.r.l. (the Issuer), as follows:

€161.3 million Class A2A Notes: Confirmed at AAA (sf)
€88.7 million Class A2B Notes: Confirmed at AAA (sf)

The Issuer is a limited liability company incorporated under the laws of Italy. The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian small and medium-sized enterprises (SMEs), entrepreneurs and artisans. The loans were originated by three banks that are part of the Creval Group: Credito Valtellinese S.C. (Creval), Cassa di Risparmio di Fano S.p.A. (Carifano) and Credito Siciliano S.p.A. (Credito Siciliano), collectively referred to as the Originators.

The ratings on the Class A2A and Class A2B Notes (the Senior Notes) address the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in October 2050.

The rating actions reflect an annual review of the transaction. The Senior Notes are pro rata and pari passu in interest and have started to amortise following the payment in full of the Class A1 Notes (that ranked senior) on the 22 October 2014 payment date. In approximately one year, the Senior Notes are at 80.7% of their initial balance. Given this deleveraging, the current credit enhancement available has increased moderately. Performance is in line with our expectations at closing. At the end of the last collection period, 31 December 2014, the portfolio delinquency ratio was 3.34% while the cumulative gross default ratio was 2.26%.

The portfolio annualised probability of default (PD) used has not changed (3.38%).

DBRS sees as a potential credit risk the fact that there is a small breach of the servicer agreement with regard to a specific limit of the permitted renegotiations: fix interest rate reduction and spread reduction on floating rates are slightly above the cumulative limit of 2% of the initial portfolio balance. This has been noted in the servicer report, disclosing that the maximum allowed amount has been passed and that no more renegotiations of this type will be admitted.

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 these ratings include the parties involved in the ratings, 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 these ratings 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 changing the transaction parameters on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):
-- Probability of Default Rates Used: Base Case PD of 3.38%, a 10% and 20% increase on the Base Case PD.
-- Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 39.44% at the AAA (sf) stress level, a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that a hypothetical increase of the base PD by 20%, ceteris paribus, would produce model results suggesting a confirmation of the Senior Notes at AAA (sf). A hypothetical decrease of the Recovery Rate by 20% would also produce model results suggesting a confirmation of the Senior Notes at AAA (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 current ratings of the Senior Notes.

It should be noted that the interest rates and other parameters that would normally vary with the rating level, including the recovery rates, were allowed to change as per the DBRS methodologies and criteria.

This is the first rating action on the Class A2A and Class A2B Notes since the Initial Rating Date. There has been a rating action on the Class A1 Notes, which were discontinued-repaid on 27 October 2014.

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.

Notes:
All figures are in euros unless otherwise noted.

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

Initial Lead Analyst: Marcello Bonassoli
Initial Rating Date: 14 February 2014
Initial Rating Committee Chair: Simon Ross

Last Rating Date: 27 October 2014
Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry van Koolbergen

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
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