DBRS Confirms Rating on Grecale ABS S.r.l. – Series 6

DBRS Ratings Limited (DBRS) has today confirmed its rating of the Class A notes of Grecale ABS S.r.l. – Series 6 (the Issuer) at AAA (sf).

The confirmation of the rating of the Class A notes is based upon the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the October 2014 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Incorporation of a sovereign-related stress component to address the impact of macroeconomic variables on collateral performance given the long-term foreign and local currency rating of A (low) for the Republic of Italy.
-- Current available credit enhancement for the Class A notes to cover the expected losses at the AAA (sf) rating level.

Grecale ABS S.r.l. – Series 6 is a securitisation of a portfolio of Italian residential mortgage loans (mutui fondiari) originated and serviced by UGF Banca S.p.A. Each loan in the pool is secured by a first lien mortgage on a residential property located in Italy. The transaction follows the standard structure under the Italian Securitisation Law and closed in July 2009.

The mortgage pool is well-seasoned (just under seven years) and relatively well-distributed across Italy.

The portfolio is performing in line with DBRS’s expectations. The 90+ delinquency ratio (excluding defaulted loans) as a percentage of the performing balance of the portfolio has slightly increased over the year and reached 1.43% in October 2014. The gross cumulative default ratio increased to 5.11% over the same period, but it is still below DBRS’s base case portfolio default rate of 7.71%.

The Class A notes are supported by subordination of the Class B notes and a non-amortising cash reserve of EUR 15.26 million. The credit enhancement for the Class A notes increased to 26.77% in October 2014, up from 23.35% in October 2013. This has been the result of the amortisation of the Class A notes.

The cash reserve is available to protect the Class A notes against both interest and principal shortfalls on an ongoing basis and it is currently at the initial and target level of EUR 15.26 million.

The Bank of New York Mellon (Luxembourg) S.A., Italian branch is the Account Bank for this transaction. The DBRS public rating of The Bank of New York Mellon (Luxembourg) S.A., Italian branch is at least equal to the Minimum Institution Rating given the rating assigned to the Class A notes, as described in the DBRS Legal Criteria for European Structured Finance. In addition, UBS Limited is the hedging counterparty for this transaction and UBS AG is the guarantor for the obligations of UBS Limited under the hedging agreement. The DBRS private rating of UBS Limited complies with the current DBRS Derivative Criteria for European Structured Finance Transactions.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. 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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports provided by The Bank of New York Mellon (Luxembourg) S.A., Italian branch and data from the European DataWarehouse. 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 27 March 2014, when DBRS confirmed the ratings of the Class A notes at AAA (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of 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):
-- DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of mortgages for the Issuer are 7.71% and 12.83%, respectively. At the AAA (sf) rating level, the corresponding PD is 30.89% and the LGD is 33.93%.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating for the Class A notes would be expected to remain at AAA (sf).

Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (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: 10 May 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Diana Turner

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
Derivative Criteria for European Structured Finance Transactions
Master European Structured Finance Surveillance Methodology
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