DBRS Upgrades Rating on Notes Issued by BPM Securitisation 3 S.r.l.

DBRS Ratings Limited (DBRS) has today upgraded its rating on the following notes issued by BPM Securitisation 3 S.r.l. (the Issuer):

-- €305,285,561.52 Class A Notes: upgraded to AAA (sf) from AA (low) (sf)

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 producer families. The majority of the loans in the portfolio have been originated by Banca Popolare di Milano S.c.a r.l. (BPM), but loans originated by Banca di Legnano S.p.A. (BLN) and Cassa di Risparmio di Alessandria S.p.A. (CRA) before their integration into BPM in 2013 form a considerable part of the portfolio.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in January 2057. DBRS does not rate the Class Z Notes.

The rating action reflects an annual review of the transaction. The Class A Notes are currently at 53.28% of their initial balance after three periods. Given this deleveraging, the current credit enhancement available has increased considerably, while the transaction performance is in line with DBRS’s expectations.

As of the July 2015 payment date, 1-3 months delinquencies, 3-6 month delinquencies and over 6-month delinquencies were 0.32%, 0.39% and 0.34% of the collateral principal balance, respectively, while the cumulative gross default ratio was 0.46% of the aggregated original balance.

Credit enhancement for the Class A Notes is provided by the subordination of the Class Z and the Reserve Accounts.

A Cash Reserve (CR) is available to cover any shortfalls in the senior fees and interest on the Class A Notes. The CR is amortising and will be maintained at 2.00% of the Class A Notes, with a current balance of EUR 7.48 million and a minimum of EUR 2.86 million. As the deal benefits from a full excess spread trapping mechanism, proceeds from the amortisation of the CR are used to amortise the Class A Notes.

BPM is the Originator, the Servicer, the Collection Account Bank and the Cash Manager for this transaction while BNP Paribas Securities Services, Milan branch (BNPSS Milan) is the Account Bank and the Principal Paying Agent. The DBRS private rating of BNPSS complies with the Minimum Institution Rating given the rating assigned to the notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology. Zenith Service S.p.A. is the Back-up Servicer Facilitator.

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. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

A review of the transaction’s legal documents was not conducted, as the documents have remained unchanged since the most recent rating action (closing).

This may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

Other methodologies 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 information provided by Deutsche Bank and BPM, 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 1 October 2014, when DBRS assigned a rating of AA (low) (sf) to the Class A Notes.

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):
-- Probability of default (PD) rates used: base case PD of 4.03%, and a 10% and 20% increase in the base case PD.
-- Recovery rates used: base case recovery rates, corresponding to a recovery rate of 52.40% at the AAA (sf) stress level for the Class A Notes, 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 an upgrade of the Class A Notes to AAA (sf). A scenario combining both a hypothetical increase in the PD by 20% and a hypothetical decrease in the Recovery Rate by 20% would also lead to model results suggesting an upgrade to AAA (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: Marcello Bonassoli
Initial Rating Date: 1 October 2014
Initial Rating Committee Chair: Jerry van Koolbergen

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

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

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.