DBRS Confirms Ratings on the Class A2A and Class A2B Notes Issued by Quadrivio SME 2014 S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the notes issued by Quadrivio SME 2014 S.r.l. (the Issuer), as follows:

-- €64,469,072.53 Class A2A Notes: Confirmed at AAA (sf)
-- €35,457,989.89 Class A2B Notes: Confirmed at AAA (sf)

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 to Italian small and medium-sized enterprises (SMEs), entrepreneurs and artisans. The loans were originated by three banks that are part of the Creval Group: Credito Valtellinese S.C. (Creval), Cassa di Risparmio di Fano S.p.A. (Carifano) and Credito Siciliano S.p.A. (Credito Siciliano), collectively referred to as the Originators.

The ratings on the Class A2A and Class A2B Notes (the Senior Notes) address the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in October 2050.

The rating actions reflect an annual review of the transaction. The Senior Notes are pro rata and pari passu in interest and have started to amortise following the payment in full of the Class A1 Notes (that ranked senior) on the 22 October 2014 payment date. In approximately two years, the Senior Notes are at 32.23% of their initial balance. Given this deleveraging, the current credit enhancement available has increased considerable, while performance of the transaction is in line with DBRS’s expectations at closing.

As of the 21 January 2016 payment date, 0-90 days delinquencies, 90-180 days delinquencies and over 180 days delinquencies were 1.270%, 0.989% and 0.039% of the original collateral balance, respectively, while the cumulative gross default ratio was 5.216% of the original collateral balance.

The Senior Notes benefit from a Cash Reserve (CR), which is available to cover senior expenses and missed interest payments on the Senior Notes. The CR is amortising and it is being maintained at 3.5% of the outstanding balance of the Senior Notes, with a floor and current balance of EUR 5.46 million (initial balance EUR 13.65 million).

BNP Paribas Securities Services SCA/Milan acts as the Account Bank and as the Paying agent for the transaction, while Barclays Bank PLC, Italian Branch act as the Depositary Account Bank. The DBRS private ratings of BNP Paribas Securities Services SCA/Milan and Barclays Bank PLC, Italian Branch comply with the Minimum Institution Rating given the ratings assigned to the Class A2A and Class A2B 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 Securitisation Services S.p.A and Creval, 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 4 February 2015, when DBRS confirmed the ratings on the Class A2A and A2B Notes at AAA (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 3.37%, and a 10% and 20% increase in the base case PD.
-- Recovery rates used: base case recovery rates, corresponding to a recovery rate of 43.25% at the AAA (sf) stress level for the Class A2A and A2B 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 A2A and A2B 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 A2A and A2B 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: 6 February 2014
Initial Rating Committee Chair: Simon Ross

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

DBRS Ratings Limited
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Mincing Lane
London EC3R 7AA
United Kingdom

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.