DBRS Assigns Ratings to Berica ABS 4 S.r.l.

DBRS Ratings Limited (DBRS) has today assigned ratings to the Class A Notes, the Class B Notes and the Class C Notes (Rated Notes) issued by Berica ABS 4 S.r.l. (Issuer).

Class A EUR 728,900,000 Residential Mortgage Backed Securities -- AA (high) (sf)
Class B EUR 75,700,000 Residential Mortgage Backed Securities -- A (sf)
Class C EUR 47,300,000 Residential Mortgage Backed Securities -- BBB (sf)

The rating of the Class A Notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date, while the ratings of the Class B Notes and the Class C Notes address ultimate payment of interest and principal on or before the legal final maturity date.

The Issuer is a limited liability company incorporated in 2015 under the laws of the Republic of Italy.

This is the fourteenth residential mortgages backed security (RMBS) originated by Banca Popolare di Vicenza Group (the fourth under the second programme ‘Berica ABS’) and the fifth RMBS transaction rated by DBRS.

The originators and servicers of the transaction are Banca Popolare di Vicenza S.c.p.a (BPVi) and Banca Nuova S.p.a. (BN) both part of Banca Popolare di Vicenza group. BPVi is also the master servicer for transaction and will be responsible for also managing the non-performing loans. The back-up servicer is Zenith Services S.p.a and the back-up servicer facilitator is 130 Finance S.r.l. The Account Bank, Calculation Agent and Principal Paying Agent is Elavon Financial Servicers Limited, UK Branch. The DBRS private rating of the Account Bank is suitable in accordance with the DBRS methodology at the time of the initial rating to allow for the Class A Notes to be rated AA (high) (sf).

The Rated Notes are backed by first lien, fully amortising mortgage loans, of which 87.00% were originated by BPVi and 13.00% were originated by BN. Approximately 65.3% of the properties securing the mortgage loans are located in the north of Italy (31.70% are located in the region of Veneto). As of 1 May 2015 (Effective Date), the transaction portfolio consisted of 8,016 loans extended to the same number of borrowers with a current balance of EUR 946.6 million and average loan balance of approximately EUR 118,090. The transaction has a weighted-average unindexed current loan-to-value (WACLTV) of 62.47% and original weighted-average unindexed (WAOLTV) of 68.93%. 97.92% of the loans were granted to individuals, Bank of Italy SAE code 600, and 2.08% to small commercial borrowers, SAE code 615.

The portfolio interest rate is primarily linked to three-months Euribor (77.61%) but also has exposure to fixed interest rates (19.40%), the European Central Bank main refinancing rate or ECB rate (2.99%) and the remainder indexed to one-month Euribor (0.05%) and six-months Euribor (0.01%). Approximately 2.59% are optional loans where the interest rate can switch, mostly every five years, from fixed to floating and/or vice versa. Furthermore, 10.42% of the portfolio pays a fixed interest rate during the teaser period ending no later than March 2016, following which they are optional loans. Moreover, 1.19% of the floating rate loans have a cap on their interest rate.

The Issuer has entered into five hedging agreements with JP Morgan Securities Plc to mitigate basis and fixed interest rate risk. The transaction swap documents reflect DBRS’s Derivate Criteria for European Structured Finance Transactions in respect to fixed to floating swaps but are not in full compliance in respect to basis swaps. For the purpose of the cash flow analysis, DBRS has assumed that the basis risk in this transaction is unhedged. DBRS has modelled the interest rate using its Unified Interest Rate Methodology.

Credit enhancement for the Class A Notes is calculated as 23%, provided by the subordination of the Class B Notes, Class C Notes and the Class J notes. Credit enhancement for the Class B Notes is calculated as 15%, provided by the subordination of the Class C Notes and the Class J notes, while the credit enhancement of the Class C Notes is 10%. The reserve fund will be established through a limited recourse loan provided by BPVi at the issue date of EUR 25,557,000 (3.00% of the initial balance of the Rated Notes) and can amortise during the life of the transaction to 3.00% of the current outstanding of the Rated Notes starting from the second payment date. The reserve fund has a floor at 1.00% of the initial balance of the Rated Notes. The reserve fund is available to pay the senior fees and the interest on the Rated Notes provided that any of the subordinated events are not met. The documents include cumulative default triggers for which the interest on the Class B Notes and Class C Notes can be deferred below the principal payment of the Class A Notes in the priority of payments. For further details on the mechanism please refer to the Rating Report available on www.dbrs.com.

The Class A Notes pay quarterly interest in arrears equal three-months Euribor plus a margin of 80 basis points, the Class B Notes equal to three-months Euribor plus a margin of 110 basis points, while the Class C Notes equal to three-months Euribor plus 210 basis points. The Class A Notes will have a step-up coupon at the payment date falling on 30 June 2026.

The servicing agreement allows loans to be renegotiated. The renegotiations can be related to spread/interest rate reduction up to a predefined limit, renegotiation to fixed or floating loans or both capital and interest payment holidays. Maturity extensions until ten years before the final maturity of the notes are also allowed. However, the servicer cannot renegotiate loans from floating or fixed rate to a modular, optional or capped loan. DBRS has modelled the possible impact of these renegotiations in its cash flow analysis. The transaction has limits for the amount of renegotiations even if this limit can be overcome if certain circumstances are met.

The ratings are based upon DBRS review of the following analytical considerations:

-- Transaction capital structure and form and sufficiency of available credit enhancement.

-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to terms in which they have invested.

-- The transaction parties’ capabilities with respect to originations, underwriting, servicing and financial strength.

-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

-- Incorporation of a sovereign-related stress component in the stress scenarios due to the rating assigned by DBRS to the Republic of Italy’s of A (low) - Stable Trend.

Notes:
All figures are in euros unless otherwise noted.

For the assignment of the initial rating, 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

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 working papers and data on the Italian economy and housing market provided by: the European Central Bank, Eurostat, Bank of Italy, Istituto Nazionale di Statistica (ISTAT). DBRS reviewed the origination and servicing practices of Banca Popolare di Vicenza Group in May 2015. The Originator provided loan-level data and historical performance of mortgage portfolio dating back to 2004. 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.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

Third-party assessments have been supplied in the context of the transaction. However, this did not impact the rating analysis.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

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

To assess the impact of a change in the transaction parameters (probability of defaults and/or loss given default) on the rating of Class A Notes, Class B Notes and Class C Notes, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- In respect of the Class A Notes and a rating category of AA (high) (sf), the Probability of Default (PD) of 41.96%, a 25% and 50% increase on the PD.
-- In respect of the Class A Notes and a rating category of AA (high) (sf), Loss Given Default (LGD) of 42.94%, a 25% and 50% increase on the LGD.
-- In respect of the Class B Notes and a rating category of A (sf), the Probability of Default (PD) of 31.18%, a 25% and 50% increase on the PD.
-- In respect of the Class B Notes and a rating category of A (sf), Loss Given Default (LGD) of 33.25%, a 25% and 50% increase on the LGD.
-- In respect of the Class C Notes and a rating category of BBB (sf), the Probability of Default (PD) of 26.03%, a 25% and 50% increase on the PD.
-- In respect of the Class C Notes and a rating category of BBB (sf), Loss Given Default (LGD) of 27.60%, a 25% and 50% increase on the LGD.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the PD by 25% would lead to a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the LGD by 25% would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the PD by 50% would lead to downgrade the Class A Notes to A (sf).
-- A hypothetical increase of the LGD by 50% would lead to a downgrade of the Class A Notes to AA (low) (sf)
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (low) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the PD by 25% would lead to a downgrade of the Class B Notes to BBB (high) (sf).
-- A hypothetical increase of the LGD by 25% would lead to a downgrade of the Class B Notes to A (low) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (sf).
-- A hypothetical increase of the PD by 50% would lead to a downgrade of the Class B Notes to BBB (low) (sf).
-- A hypothetical increase of the LGD by 50% would lead to a downgrade of the Class B Notes to BBB (high) (sf)
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to BB (high) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BB (high) (sf).
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to BB (sf).

DBRS concludes that for the Class C Notes:
-- A hypothetical increase of the PD by 25% would lead to a downgrade of the Class C Notes to BB (high) (sf).
-- A hypothetical increase of the LGD by 25% would lead to a downgrade of the Class C Notes to BBB (low) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class C Notes to BB (sf).
-- A hypothetical increase of the PD by 50% would lead to a downgrade of the Class C Notes to BB (low) (sf).
-- A hypothetical increase of the LGD by 50% would lead to a downgrade of the Class C Notes to BB (high) (sf)
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class C Notes to B (high) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class C Notes to BB (low) (sf).
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class C Notes to B (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) 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: Davide Nesa, Senior Financial Analyst
Initial Rating Date: 10 July 2015
Initial Rating Committee Chair: Diana Turner, Senior Vice President

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
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
Derivative Criteria for European Structured Finance Transactions