DBRS Confirms A (high) (sf) Rating on the Class A Notes Issued by Credico Finance 14 S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its A (high) (sf) rating on the EUR 92,974,995.03 Class A Notes issued by Credico Finance 14 S.r.l. (the Issuer).

The Issuer is a limited liability company incorporated under the laws of the Republic of Italy. The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian small and medium-sized enterprises (SMEs), artisans, and producer families. The portfolio comprises loans granted by ten unrated Italian Cooperative Banks (BCCs), as listed below:

-- B.C.C. dell’Adriatico Teramano (BCC Teramano)
-- Banca di Credito Cooperativo dell’alta Brianza – Alzate Brianza – Soc. Coop. (BCC Alzate Brianza)
-- Banca di Credito Cooperativo di Piove di Sacco s.c. (BCC Piove di Sacco)
-- Banca di Forlì Credito Cooperativo Società Cooperativa (BCC Forlì)
-- Banca di Credito Cooperativo di Pompiano e della Franciacorta Soc. Coop. (BCC Pompiano)
-- Cassa Rurale ed Artigiana di Brendola Credito Cooperativo – Società Cooperativa (BCC Brendola)
-- Banca Annia Credito Cooperativo di Cartura e del Polesine S.C. (BCC di Cartura e del Polesine)
-- Banca di Teramo di Credito Cooperativo – Società Cooperativa (BCC di Teramo)
-- Banca di Credito Cooperativo di Castiglione Messer Raimondo e Pianella s.c.r.l. (BCC Castiglione)
-- Banca Romagna Cooperativa Credito Cooperativo Romagna Centro e Macerone S.c. (BCC Romagna)

Italian authorities put BCC Romagna into liquidation on 17 July 2015 under national insolvency law. The balance sheet assets (excluding loans classified as sofferenza) and some liabilities (deposits and senior bonds) were transferred to Banca Sviluppo S.p.A. (Banca Sviluppo), after the deposit guarantee scheme of the cooperative Italian banks (FCGD) covered the negative difference between the transferred asset and liabilities.
Following that, Banca Sviluppo replaced BCC Romagna as servicer in Credico Finance 14 S.r.l., starting from 17 July 2015. All the assets, contractual obligations, duties and rights assumed by BCC Romagna have also been transferred to Banca Sviluppo.
DBRS considers the transfer of the servicing activities satisfactory to have no impact on the performance of the transaction. No payment delay was incurred.

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 July 2052. DBRS does not rate the Class B Asset Backed Floating Rate Notes, divided into ten Notes (B1, B2, B3, B4, B5, B6, B7, B8, B9, B10, collectively the Junior Notes), which have an aggregate total par balance of EUR 85,376,000.
The rating actions reflect an annual review of the transaction. The Class A Notes are currently at 42.38% of their initial balance after nine 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 20 January 2016 payment date, 0-90 days delinquencies, 90-120 days delinquencies and over 120 days delinquencies are at 2.533%, 0.342% and 1.126% of the original collateral balance respectively, while the cumulative gross default ratio was 0.443% of the original collateral balance.

There are ten non-amortising Cash Reserves (CRs), sized at 4% of the initial balance of Class A Notes (the Rated Notes), which are available to cover senior expenses and missed interest payments on the Class A notes. In addition, each CR can be used to cover for principal shortfalls (i.e. defaults) provided that the balance of each CR cannot be lower than 3% of the Outstanding Balance of the Single Portfolio Class A Notes. The current balance of the CRs is €8,776,000.00, equal to its initial amount.

Each Servicer is allowed to buy back single loans up to 8% of the initial portfolio. As of the last payment date, BCC Forli and BCC Pompiano have breached that limit as reported repurchases were at 11.736% and 12.072% respectively. These additional repurchases have been authorised by the representative of the noteholders.

BNP Paribas Securities Services SCA/Milan holds the Transaction Account for the transaction. The DBRS private rating of BNP Paribas Securities Services SCA/Milan complies 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.

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 legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria 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 information provided by Accounting Partners S.r.l. 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 October 2014, when DBRS confirmed the rating on the Class A Notes at A (high) (sf).

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 2.97%, and a 10% and 20% increase in the base case PD.
-- Recovery rates used: base case recovery rates, corresponding to a recovery rate of 52.62% at the A (high) (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 a confirmation of the Class A Notes at their current rating. 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 a confirmation of the current rating of the Class A Notes.

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: Marcello Bonassoli
Initial Rating Date: 21 October 2013
Initial Rating Committee Chair: Simon Ross

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

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

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.