DBRS Upgrades Rating on Malatesta Finance S.r.l. Series 2012

DBRS has today taken the following rating action on the bond issued by Malatesta Finance S.r.l. Series 2012 (the Issuer):

-- Class A Notes upgraded to AA (sf) from A (high) (sf);

The upgrade of the rating on the Class A Notes is based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of the April 2015 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AA (sf) rating level.

Malatesta Finance S.r.l. Series 2012 is a securitisation of first lien Italian residential mortgages originated by Cassa di Risparmio di Cesena S.p.A. and Banca di Romagna S.p.A. The portfolio is serviced by Cassa di Risparmio di Cesena S.p.A. The transaction closed in May 2012.

As of April 2015, 2 to 3 month arrears are at 1.20%, up slightly from 1.03% in April 2014. The 90+ delinquency ratio was at 2.17%. The current cumulative default ratio is low at 0.84%.

As of the April 2015 payment date, credit enhancement to the Class A Notes was 20.69%, up from 18.46% in April 2014. Credit enhancement to the Class A Notes consists of subordination of the Class B1 and Class B2 Notes.

The transaction benefits from a Cash Reserve that is available to cover senior fees and interest shortfall on the Class A Notes. The Cash Reserve is currently at the target level of EUR 4.22 million and amortises along with the Class A Notes.

The Bank of New York Mellon (Luxembourg) S.A. - Italian Branch (the Italian Account Bank) holds the collection account for this transaction while The Bank of New York Mellon - London Branch (the English Account Bank) holds the Cash Reserve. The DBRS public ratings of the Italian Account Bank and the English Account Bank, at AA (low) and AA respectively, comply with the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

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 on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports provided by Accounting Partners S.r.l. (the Computation Agent), servicer reports provided by Cassa di Risparmio di Cesena 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 9 July 2014, when DBRS confirmed the rating on the Class A Notes at A (high).

Information regarding DBRS ratings, including definitions, policies and methodologies is available at 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 loss given default (LGD) for the pool based on a review of the current assets. 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 6.00% and 1.03%, respectively. At the AA (sf) rating level, the corresponding PD is 22.39% and the LGD is 15.07%.
-- 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 AA (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 AA (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 to remain at AA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: 25 May 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Andrew Lynch
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.

-- Legal Criteria for European Structured Finance Transactions (December 2014)
-- Master European Structured Finance Surveillance Methodology (April 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (January 2015)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2015)
-- Unified Interest Rate Model for European Securitisations (January 2013)

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