DBRS Takes Rating Actions on Cassa Centrale Finance 3 S.r.l.

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the notes issued by Cassa Centrale Finance 3 S.r.l. (the Issuer):

-- Class A notes confirmed at AAA (sf) and remain Under Review with Negative Implications

The above-mentioned rating actions are based on the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of defaults and level of delinquencies, as of the April 2015 payment date.
-- Updated Portfolio Defaults, Loss Given Defaults and Expected Losses estimates for the remaining pool.
-- Current available credit enhancement to the Class A Notes to cover the Expected Losses at the AAA (sf) rating level.
-- The Class A notes remain Under Review with Negative Implications pending DBRS’s review of recent developments in European regulation and legislation that mean that there is less certainty about the likelihood of timely systemic support for these systemically important banks (SIBs) (see “DBRS Places 38 European Banking Groups Under Review Negative due to Systemic Support”).

Cassa Centrale Finance 3 S.r.l. is a securitisation of Italian residential mortgages (78% of the portfolio) and agrarian loans (22% of the portfolio) originated by 14 cooperative Italian banks: Mediocredito Trentino A.A., BCC Cherasco, Cassa Rurale di Aldeno e Cadine, Cassa Rurale Lavis Valle di Cembra, Cassa Rurale di Pergine, BCC Centromarca, Cassa Rurale Alto Garda, Cassa Rurale Pinetana Fornace e Seregnano, Cassa Rurale Adamello–Brenta, Cassa Rurale di Rovereto, Banca Alto Vicentino Credito Cooperativo Schio, Cassa Rurale Centrofiemme Cavalese, Banca di Cavola e Sassuolo, and Cassa Rurale di Folgaria, which also operates as Servicer of their portfolio. The transaction is coordinated by Cassa Centrale Banca Credito Cooperativo del Nord Est S.p.A. and initially closed in December 2009.

As of the April 2015 payment date, the current 30+ delinquency ratio as a percentage of the current balance of the portfolio (EUR 224.4 million) was 3.57%. The cumulative default amount has remained at zero since the close of the transaction. This is due to the sellers repurchasing all loans which are going to become defaulted, resulting in a cumulative default percentage of zero.

Credit enhancement for the Class A Notes (as a percentage of the collateral balance) consists of subordination of 14 Class B Notes, ranked pari passu, and is at 25.51%. Funds from each originator are distributed in accordance with a single priority of payments; however, the waterfall could combine and available funds will cross-collaterise if a performance trigger is breached. The transaction also benefits from a Liquidity Reserve available to cover senior expenses shortfall. The Liquidity Reserve has been funded by each originator (except Mediocredito Trentino A.A.) and currently stands at EUR 25.65 million.

Deutsche Bank S.p.A. (the Account Bank) holds the Treasury Account for the transaction. DBRS’s private rating of Deutsche Bank S.p.A. was placed Under Review Negative on 20 May 2015. This rating action (see “DBRS Places 38 European Banking Groups Under Review Negative due to Systemic Support”) reflects DBRS’s view that recent developments in European regulation and legislation mean that there is less certainty about the likelihood of timely systemic support for these systemically important banks (SIBs).

Mediocredito Trentino A.A. (Mediocredito) is the fixed-to-floating swap counterparty for the transaction in order to hedge the interest risk raising from the fixed rates loans of the agrarian portfolio given the floating coupon paid on the notes. Mediocredito is in breach of the Second Trigger Required Ratings as defined in the swap documentation. The Issuer has informed DBRS that it is currently posting collateral as per the swap documentation but the issuer was not able to find a guarantor for the Mediocredito obligations. As a result, DBRS did not give any benefit to the hedge in the underlying cash flow analysis.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology.” DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. Other methodologies referenced in this transaction are listed at the end of this press release.

This may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include investor reports provided by Crédit Agricole Corporate and Investment Bank. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; however, Agreed Upon Procedures (AUP) are included in the requested documentation. DBRS was not supplied with AUP documents. Data checks were performed and DBRS did not apply additional cash flow stresses in its scenarios.

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 26 June 2014, when DBRS confirmed 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 6.02% and 1.95%, respectively. The corresponding levels at the AAA (sf) rating level are 28.67% and 19.88%.
-- 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 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 of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected at remain at AAA (sf).

Class A 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 LGD and 25% increase in PD, expected rating of AAA (sf).
-- 25% increase in LGD and 50% increase in PD, expected rating of AAA (sf).
-- 50% increase in LGD and 25% increase in PD, expected rating of AAA (sf).
-- 50% increase in LGD and 50% increase in PD, expected rating of AAA (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: Alessio Pignataro
Initial Rating Date: 21 April 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Diana Turner

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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 and are as follows:

-- 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
-- Unified Interest Rate Model for European Securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations

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