DBRS Confirms Rating on Creso 2 S.r.l. at A (sf)

DBRS Ratings Limited (DBRS) has today confirmed its rating of A (sf) on the Class A notes of Creso 2 S.r.l. (the Issuer).

The confirmation of the rating of is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the December 2014 payment date.
-- Updated portfolio default rate, loss given default (LGD) 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 A (sf) rating level.

Creso 2 S.r.l. is a securitisation of a portfolio of Italian residential mortgage loans (mutui fondiari) originated and serviced by Cassa di Risparmio della Provincia di Chieti S.p.A. (Carichieti). 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 August 2012.

On 5 September 2014, the Bank of Italy placed Carichieti under a special administration regime. The transaction benefits from a fully funded cash reserve and a backup servicer arrangement with Banca Popolare Pugliese S.c.p.A. These factors, coupled with the commitment of Carichieti to transfer collections on the business day following the date on which the relevant amount has been collected, are considered adequate to mitigate any risk arising from a potential servicing disruption.

The mortgage pool is well seasoned (just under seven years) and it is geographically concentrated in the Abruzzo region in central Italy. In addition to the concentration risk, the transaction is also exposed to seismic risk. As a result, DBRS increased the Italian benchmark market value decline assumptions to accommodate these specific risk elements of the portfolio to the following levels for their respective rating scenarios: 82.37% (AAA), 77.74% (AA), 70.71% (“A”), 63.54% (BBB), 56.51% (BB) and 49.48% (B).

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 decreased to 2.67% in December 2014. The gross cumulative default ratio also decreased over the same period to 0.58%.

The Class A notes are mainly supported by subordination of the Class B notes and excess spread. The credit enhancement for the Class A notes increased to 41.95% in December 2014 from 33.99% in December 2013 as a result of the amortisation of the Class A notes.

An amortising cash reserve of EUR 13.15 million was set up at the closing of the transaction by a subordinated loan. The cash reserve mainly covers interest shortfall on the Class A notes and items senior thereto. The cash reserve is currently at the target level of EUR 10.17 million (i.e., approximately 6% of the Class A notes balance).

The Bank of New York Mellon (Luxembourg) S.A.’s (BNY Mellon Luxembourg) Italian branch is the Transaction Bank for this transaction. The DBRS public rating of BNY Mellon Luxembourg’s 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.”

Notes:
All figures are in euros unless otherwise noted.

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

The sources of information used for this rating include investor reports provided by Zenith Services S.p.A. 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 A (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 with the parameters used to determine the rating (the base case):
-- DBRS expected a lifetime base-case probability of default (PD) and 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 10.83% and 20.90%, respectively. At the A (sf) rating level, the corresponding PD is 27.40% and the LGD is 49.79%.
-- 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 on the Class A notes would be expected to remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A notes would be expected to remain at A (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating on the Class A notes would be expected to remain at A (sf).

Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Konstantine Pastras
Initial Rating Date: 1 August 2012
Initial Rating Committee Chair: Claire Mezzanotte

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

DBRS Ratings Limited
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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
-- 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