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

DBRS Ratings Limited (DBRS) has today assigned ratings to the following notes to be issued by Grecale RMBS 2015 S.r.l. (Issuer).

• EUR 573,500,000 Class A Residential Mortgage Backed Securities at AAA (sf)
• EUR 58,100,000 Class B Residential Mortgage Backed Securities at A (sf)
• EUR 29,000,000 Class C Residential Mortgage Backed Securities at BBB (high) (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 eighth residential mortgages backed securities (RMBS) originated by Unipol Banca S.p.a. (named ‘Grecale’) and the second RMBS transaction rated by DBRS.

The originator and servicer of the transaction are Unipol Banca S.p.a. (Unipol or the Originator) which belong to the insurance group Unipol Gruppo Finanziario S.p.a. The back-up servicer is Zenith Services S.p.a. The English Account Bank is BNP Paribas Securities Service SA, London branch. The Italian Account Bank and Principal Paying Agent is BNP Paribas Securities Services SA, Milan branch. The DBRS private ratings of the Account Banks comply with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology given the AAA (sf) rating assigned to the Class A notes.

The notes are backed by first lien loans, of which 82.52% were originated by Unipol while 17.48% were originated by Banca SAI S.p.a. The latter merged in Unipol in 2014 following the acquisition of its parents company (Fondiaria SAI S.p.a.) by Unipol Gruppo Finanziario S.p.a.

The securitised portfolio is well distributed across Italy. 41.20% of the properties securing the mortgage loans are located in the north of Italy, 25.59% in the centre and 28.70% in the south. As of 18 September 2015 (Effective Date), the transaction portfolio consisted of 6,999 loans extended to 6,979 borrowers with a current balance of EUR 726 million and average loan balance of approximately EUR 103,726. The transaction has a weighted-average unindexed current loan-to-value (WACLTV) of 54.36% and original weighted-average unindexed (WAOLTV) of 62.17%. The portfolio was granted to individuals, Bank of Italy SAE code 600.

The loans in the portfolio pay capital plus interest following three different amortisation plans. The first is the French amortisation plan where borrowers pay capital plus interest on the loans combined (64.53% of the portfolio). The second is an amortisation plan composed by constant instalment (33.96%) where borrowers pay a fixed instalment with interest and principal be diverted based on the interest accrued on the loans. The third is an amortisation plan where a balloon payment calculated on a predefined percentage of the principal (ranging between 20%-25%) is paid by the borrower at maturity (1.50%).

The portfolio interest rate is primarily linked to three-months Euribor (83.64%). Additionally, the portfolio has exposure to fixed interest rates (13.81%), six-months Euribor (1.42%) and the European Central Bank main refinancing rate or ECB rate (1.13%). The portfolio includes optional loans (12.01%) where the interest rate can switch, from fixed to floating and/or vice versa. Currently, 3.70% of the optional loans are paying a fixed interest rate and 8.31% pay floating interest rate.

The Issuer has entered into three hedging agreements with JP Morgan Securities Plc to mitigate interest rate risk between the fixed-rate loans and floating-rate liabilities as well as the basis risk between the floating-rate loans and floating-rate liabilities (both of which are indexed to 3-month Euribor but reset on different dates). The agreements for the fixed-to-floating swap fully complies with DBRS’s Derivative Criteria for European Structured Finance Transactions methodology (“derivative criteria”) for notes rated up to AAA (sf), while the basis swaps do not fully comply with the derivative criteria as the volatility cushions (in case collateral has to be posted with respect to the basis swap) are below those published. As a result, only for the basis risk, DBRS applied additional stresses in the form of basis and re-pricing assumptions in its cash flow model to mitigate the risk of a swap counterparty downgrade that warrants collateral to be posted as described in derivate criteria.

Credit enhancement for the Class A notes is calculated as 21.00%, 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 13.00%, provided by the subordination of the Class C notes and the Class J notes while the credit enhancement of the Class C notes is 9.00%. The reserve fund will be established through a subordinated loan provided by Unipol at the issue date of EUR 17,205,000 (3.00% of the initial balance of the Class A notes) and can amortise during the life of the transaction to 3.00% of the current outstanding of the Class A notes starting from the second payment date. The reserve fund has a floor at 1.00% of the initial balance of the Class A notes. The reserve fund is available to pay the senior fees and the interest on the Class A notes.

The Class A notes pay quarterly interest in arrears equal to three-months Euribor plus a margin of 80 basis points. The Class B notes and Class C notes pay a coupon equal to three-months Euribor plus a margin of 50 basis points. The Class B and Class C notes have a capped coupon equal to 5.00%. The waterfall for payments of interest and principal on the notes combines both revenue and principal receipts from the mortgage portfolio.

The servicing agreement allows loans to be renegotiated. The renegotiations can be related to spread/interest rate reduction, renegotiation to fixed or floating loans or both capital and interest payment holidays. Maturity extensions until fourteen years before the final maturity of the notes are also allowed. However, the servicer cannot renegotiate loans from floating or fixed rate to optional rate loan 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.

For further details on the analysis please refer to the rating report available on www.dbrs.com.

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.

The principal methodology applicable is: Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.

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 these ratings 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 Unipol Banca S.p.a. in July 2015. The Originator provided loan-level data and historical performance of mortgage portfolio dating back to 2002. 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, Class B notes and Class C 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 AAA (sf), the Probability of Default (PD) of 33.81%, a 25% and 50% increase on the PD.
-- In respect of the Class A notes and a rating category of AAA (sf), Loss Given Default (LGD) of 33.63%, 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 24.03%, 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 23.83%, a 25% and 50% increase on the LGD.
-- In respect of the Class C notes and a rating category of BBB (high) (sf), the Probability of Default (PD) of 21.14%, a 25% and 50% increase on the PD.
-- In respect of the Class C notes and a rating category of BBB (high) (sf), Loss Given Default (LGD) of 20.18%, a 25% and 50% increase on the LGD.

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

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

DBRS concludes that for the Class C notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to maintain the Class C notes to BBB (high) (sf).
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the Class C notes to BBB (high) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain the Class C notes to BBB (high)
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to maintain the Class C Notes to BBB (high) (sf).
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to maintain the Class C 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 maintain the Class C notes to BBB (high) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to maintain the Class C notes to BBB (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 C notes to BBB (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: 27 November 2015
Initial Rating Committee Chair: Quincy Tang, Managing Director

Lead Surveillance Analyst: Antonio Di Marco

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 analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375