DBRS Assigns Ratings to Abruzzo 2015 RMBS S.r.l.

DBRS Ratings Limited (DBRS) has today assigned a rating of A (sf) to the Class A notes issued by Abruzzo 2015 RMBS S.r.l. (Issuer). The nominal amount of the Class A notes is EUR 392,300,000.

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. The Class A notes pay quarterly interests in arrears equal to three-months Euribor plus a margin of 80 basis points.

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

This is the first residential mortgage-backed securities (RMBS) originated by Banca Tercas S.p.a. and Banca Caripe S.p.a (Originators) following the closing of the special administration procedure of Bank of Italy. Additionally, it is the first RMBS transaction originated by those banks rated by DBRS.

The originators and servicers of the transaction are Banca Tercas S.p.a (Tercas) and Banca Caripe S.p.a. (Caripe), both belonging of Banca Popolare di Bari group. Tercas is also the master servicer for the transaction and will be responsible for managing the non-performing loans. The back-up servicer is Zenith Services S.p.a. The Transaction Bank, Agent Bank and Principal Paying Agent is BNP Paribas Securities Services SA, Milan Branch. JP Morgan Securities Plc is the Swap Counterparty. The DBRS private rating of the Transaction Bank and the Swap Counterparty 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 A (sf).

The Class A notes are backed by first lien, fully amortising mortgage loans, of which 60.19% were originated by Tercas and 39.81% were originated by Caripe. Approximately 82.85% of the properties securing the mortgage loans are located in the south of Italy (79.01% are located in the region of Abruzzo). As of 21 July 2015 (Effective Date), the transaction portfolio consisted of 6,665 loans extended to the 6,646 borrowers with a current balance of approximately EUR 450.9 million and average loan balance of EUR 67,649. The transaction has a weighted-average unindexed current loan-to-value (WACLTV) of 47.36% and original weighted-average unindexed (WAOLTV) of 61.54%. The current loan to value is between the low ranges of the Italian RMBS transactions rated by DBRS since 2011 and this is mainly due to the high seasoning of the pool equal to 5.75 years. The entire Portfolio was granted to individuals, Bank of Italy SAE code 600.

34.29% of the portfolio pays interest to six-months Euribor, 21.39% to the three-month Euribor, 11.97% to one-months Euribor, 8.77% to the European Central Bank main refinancing rate or ECB rate and 23.58% to fixed interest rates. The mortgages paying fixed rate are divided between 22.56% paying the current fixed rate for life and 1.01% which will re-price the fixed rate in line with the future EURIS (Euribor interest rate swap) for the predefined maturity. The portfolio include 5.56% optional loans (4.76% currently pays floating rate and 0.80% fixed rate) where borrowers can decide to switch the interest rate, from fixed to floating and/or vice versa. Finally, 3.83% of the floating rate loans have a cap on their interest rate.

The Issuer has entered into two hedging agreements with JP Morgan Securities Plc to mitigate fixed interest rate risk on the portion of the portfolio that currently pays fixed rate. The transaction swap documents reflect DBRS’s “Derivate Criteria for European Structured Finance Transactions” methodology criteria in respect to fixed to floating swaps for allowing the Class A notes to be rated at A (sf). For the purpose of the cash flow analysis. DBRS assumed the basis risk between 3-months Euribor payable by the Class A notes and floating basis of the portfolio, as well as the risk related to optional loans and loans with interest rate cap to be unhedged. DBRS has modelled the interest rate using its “Unified Interest Rate Methodology”.

Credit enhancement for the Class A notes is calculated as 13.00%, provided by the subordination of the portion of the Class J1 notes and Class J2 notes (Class J notes) collateralised by the mortgages portfolio. The reserve fund has been funded through an over-issuance of the Class J notes at the issue date for a total amount of EUR 11,802,742 (3.00% of the initial balance of the Class A notes) and cannot amortise during the life of the transaction. The reserve fund is available to pay the senior fees and the interest on the Class A notes and on the payment date in which the Class A notes will be redeemed in full the amount standing to the cash reserve account can be utilised to pay the principal of the Class A notes.

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 five years before the final maturity of the notes are also allowed. DBRS has modelled the possible impact of these renegotiations in its cash flow analysis.

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 Tercas S.p.a. in May 2015. The Originator provided loan-level data and historical performance of mortgage portfolio dating back to 2005. 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.

DBRS was supplied with third-party assessments. 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, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- In respect of the Class A notes and a rating category of A(sf), the Probability of Default (PD) of 26.03%, a 25% and 50% increase on the PD.
-- In respect of the Class A notes and a rating category of A(sf), Loss Given Default (LGD) of 27.33%, 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 BBB (sf).
-- A hypothetical increase of the LGD by 25% 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 25%, ceteris paribus, would lead to a downgrade of the Class A notes to BBB(sf).
-- A hypothetical increase of the PD by 50% would lead to downgrade the Class A notes to BBB(low) (sf).
-- A hypothetical increase of the LGD by 50% would lead to a downgrade of the Class A 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 A 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 A notes to BBB(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 A notes to BB(high)(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: 11 August 2015
Initial Rating Committee Chair: Quincy Tang, Managing Director

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

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