DBRS Confirms Palladium Securities 1 S.A. Series 124 Notes—Collateral Issued by Republic of Italy

DBRS Ratings Limited (DBRS) has today confirmed the A (low) (sf) rating on the €486.1 million Series 124 Fixed to Floating Rate Instruments due 2023 (the Notes) issued by Palladium Securities 1 S.A. Acting in Relation to Compartment 124-2013-24 (the Issuer).

The Issuer is a public limited liability company (société anonyme) incorporated under the laws of the Grand Duchy of Luxembourg. The transaction is a cash flow securitisation collateralised by a sovereign inflation-linked bond issued by the Republic of Italy (the Collateral), ISIN IT0004243512. The noteholders and other transaction counterparties have recourse only to the assets in Compartment 124-2013-24 in accordance with Luxembourg law.

The transaction is a credit-linked note in which the Issuer uses an asset swap to transform the payout profile of a debt security. The noteholders are effectively exposed to the risk that either the Collateral or the counterparties default. The transaction documents do not contain any downgrade provisions with respect to Deutsche Bank AG, London Branch (acting as the Hedging Counterparty). As such, DBRS regards the rating of the Notes to be linked to those of the Collateral and Hedging Counterparty.

DBRS maintains an internal assessment on the Collateral Guarantor to evaluate the credit risk of the Collateral and monitor its credit risk on an ongoing basis. DBRS does not rate the Collateral or the Collateral Guarantor. The internal assessment of the Collateral Guarantor is an opinion regarding its creditworthiness based primarily upon pubic ratings. Internal assessments are not ratings, and are not published.

The current rating action is the result of an annual surveillance review of the transaction.

The previous rating action on this transaction took place on 29 May 2014, when the rating of the Notes was confirmed.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating CLOs and CDOs of Large Corporate Credit.” 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

A review of the transaction’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

The sources of information used for this rating include Palladium Securities 1 S.A. and other public sources.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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 extent of any factual investigation or independent verification depends on facts and circumstances.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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):

-- A one notch downgrade to the Collateral rating.
-- A one notch downgrade to the Hedging Counterparty rating.

DBRS concludes that a hypothetical downgrade to the Collateral rating by one notch, ceteris paribus, would lead to a downgrade of the transaction to BBB (high) (sf). A hypothetical one notch downgrade to the Hedging Counterparty rating, ceteris paribus, would not impact the current rating. A scenario combining both the downgrade of the Collateral rating and the Hedging Counterparty rating would lead to a downgrade of the Series 124 Instruments to BBB (high) (sf).

For further information on DBRS’s 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.

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

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

Initial Lead Analyst: Simon Ross
Initial Rating Date: 15 January 2014
Initial Rating Committee Chair: Jerry van Koolbergen

Most Recent Rating Update: 29 May 2014
Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry van Koolbergen

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.

-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Rating CLOs and CDOs of Large Corporate Credit

A description of how DBRS analyses structured finance transactions and how its methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375