DBRS Confirms Ratings on the Notes of BPL Mortgages S.r.l., Series VII, and Maintains UR-Negative

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the following Notes (the Notes) issued by BPL Mortgages S.r.l., Series VII (the Issuer). The Notes remain Under Review with Negative Implications.

-- EUR 565,172,472.18 Class A Notes: Confirmed at A (sf), UR-Neg.
-- EUR 269,300,000.00 Class B Notes: Confirmed at BBB (low) (sf), UR-Neg.

The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian small and medium-sized enterprises (SMEs), entrepreneurs, artisans and self-employed individuals which were granted by Banco Popolare Società Cooperativa (BP) and Credito Bergamsco S.p.A. (Creberg and collectively with BP, the Originators). On 1 June 2014, Creberg was merged into BP and ceased to exist as a standalone entity. As clarified in the transaction agreements, BP has assumed all Creberg obligations and rights arising from agreements executed before 1 June 2014.

The Class A Notes rank senior to the Class B Notes with respect to interest and principal payments. However, the interest payments due on Class B Notes rank senior with respect to the principal repayments on Class A Notes. The ratings on Class A Notes and Class B Notes address the timely payment of interest and the ultimate payment of principal payable on or before the Maturity Date in November 2054. DBRS does not rate the Class C Notes.

The rating actions reflects an annual review of the transaction. The Class A Notes are amortising and are at 52.46% of their initial balance at the last payment date (26 May 2015). Given this deleveraging, the current credit enhancement available has increased considerably, while the transaction performance is in line with DBRS’s expectations.

BNP Paribas Securitisation Services, London Branch acts as the transaction account bank and paying agent. The transaction bank for the purpose of holding the cash reserve account is at Banco Popolare Società Cooperativa, London Branch. Cash Reserve (CR) is available to cover senior expenses and interest shortfalls on the Notes throughout the life of the transaction. The CR is non-amortising, which increase the liquidity protection to the Notes as they pay down. The balance of the CR is maintained at EUR 80.80 million and was funded through the proceeds of a subordinated loan granted by BP and the interest collections received by the Issuer between the Valuation Date and the Closing Date.

The 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” and “http://www.dbrs.com/research/280456/dbrs-places-21-classes-from-13-european-sf-transactions-under-review-with-negative-implications.html”).

Cumulative defaults as defined in the transaction documents are at 2.74% after one year since the closing date. DBRS’s portfolio annualised probability of default (PD) remains at 5.78%. Recovery Rates remain at similar levels to the ones calculated at closing.

There have not been substantial changes in the portfolio composition since DBRS’s initial rating. The current portfolio continues to exhibit relatively low borrower concentration, similar as at closing. High levels of industry concentration in the Real Estate and Construction sectors are in line with the initial portfolio and are addressed in DBRS’s Diversity Model.

Notes:
All figures are in euros unless otherwise noted.

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.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria 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.

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 the issuer, BP and data from the European DataWarehouse GmbH.

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 considers the information made available to it for the purposes of providing this rating 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.

The previous rating actions on this transaction took place on 29 May 2015, when the ratings of the Notes were placed Under Review with Negative Implications.

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):
-- Probability of default (PD) rates used: base case PD of 5.78%, a 10% and 20% increase in the base case PD.
-- Recovery rates used: base case recovery rates, corresponding to a recovery rate of 39.17% at the A (sf) stress level and 42.11% at the BBB (low) (sf) level, a 10% and 20% decrease in the base case recovery rates.

DBRS concludes that either a hypothetical increase of the base PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would produce model results suggesting a confirmation of the Notes at their current ratings. 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.

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.

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

Initial Lead Analyst: Marcello Bonassoli
Initial Rating Date: 30 June 2014
Initial Rating Committee Chair: Jerry Van Koolbergen

Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry Van Koolbergen

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
-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda

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.