DBRS Confirms Rating on Class A Notes of Marche M5 S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its AAA (sf) rating on the EUR 103,890,671 Class A notes issued by Marche M5 S.r.l. (the Issuer).

The Issuer is a limited liability company incorporated under the laws of Italy. The transaction is a cash flow securitisation collateralised by a portfolio of bank loans granted by Banca delle Marche S.p.A. (Marche) to Italian Small and Medium-Sized Enterprises (SMEs). The rating on the Class A notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in October 2065.

Marche acts as the Originator, Servicer, Cash Manager and Collection Account Bank of the portfolio. On 15 October 2013, the Ministry of Economics and Finance decided, upon proposal of the Bank of Italy, to place Marche under special administration (amministrazione straordinaria). Marche confirmed to us that it would continue regularly its activity related to all the roles undertaken in the transaction. On 1 June 2015, DBRS issued a commentary stating that no impact was expected on Marche M5 S.r.l. and Marche M6 S.r.l. from the non-repayment of the EUR 1.8 billion loan granted by Credico Fondiario.

Up to date, Marche has been able to continue its role as Collection Account Bank and Servicer without any noticed disruption. The transaction benefits from a Back-up Servicer arrangement with Italfondiario S.p.A. and a Potential Commingling Account funded with EUR 15,172,926.95. These mitigants are considered to adequately mitigate any risk arising from a potential servicing disruption.

BNP Paribas Securities Services S.A. (Milan Branch) is the Italian Account Bank, and BNP Paribas Securities Services S.A (London Branch) is the English Account Bank. The DBRS private rating of BNP Paribas Securities Services S.A. (Milan Branch) and BNP Paribas Securities Services S.A (London Branch) 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.

J.P. Morgan Securities Limited and JPMorgan Chase Bank, N.A. are the Swap Counterparty and Swap Guarantor, respectively. The DBRS private rating of J.P. Morgan Securities Limited and the DBRS rating of JPMorgan Chase Bank, N.A. comply with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The rating action reflects an annual review of the transaction. Credit enhancement has increased considerably as a result of the deleveraging of the Class A notes, currently at 8.69% of their initial balance. Gross cumulative defaults, as defined in the transaction documents, are at 18.04% as of the last payment date. In line with the performance of the deal, the recalculated portfolio annualised probability of default (PD) has increased to 6.00%.

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)”. 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 referenced in this transaction are listed at the end of this press release. This may be found at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the 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 action include information provided by Securitisation Services S.p.A. and Marche, and loan level 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 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 15 September 2014, when DBRS upgraded the rating assigned to the Class A notes from AA (sf) to 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):
-- Probability of Default (PD) Rates Used: Base Case PD of 6.00%, and a 10% and 20% increase in the Base Case PD.
-- Recovery Rates Used: Base Case Recovery Rate of 43.04% at the AAA (sf) stress level, and a 10% and 20% decrease in the Base Case Recovery Rate.

DBRS concludes that a hypothetical increase of the Base Case PD by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would produce model results suggesting a confirmation of the Class A notes at their current rating. A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% would also lead to model results suggesting a confirmation of the current rating.

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: Mudasar Chaudhry
Initial Rating Date: 27 June 2012
Initial Rating Committee Chair: Jerry Van Koolbergen

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

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Registered in England and Wales: No. 7139960

The rating methodologies 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 Small and Medium-Sized European Enterprises (SMEs)
-- Rating CLOs and CDOs of Large Corporate Credit
-- Derivative Criteria for European Structured Finance Transactions
-- 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
-- Unified Interest Rate Model for European 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.