DBRS Upgrades 2012 POPOLARE BARI SME S.r.l.’s Class A1 and Class A2 Notes and Removes UR-Positive

DBRS Ratings Limited (DBRS) has today upgraded the ratings on the following Notes issued by 2012 POPOLARE BARI SME S.r.l. (the Issuer):

-- €101,218,622.40 Class A1 Notes upgraded to AA (sf) from A (high) (sf)
-- €26,278,442.40 Class A2 Notes upgraded to AA (sf) from A (high) (sf)

DBRS has also removed Under Review with Positive Implications (UR-Pos) designation.

The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian small- and medium-sized enterprises and self-employed individuals. The loans were originated by two banks that are part of the Banca Popolare di Bari Group: Banca Popolare di Bari S.C.p.A. (BPB) and Cassa di Risparmio di Orvieto S.p.A (CRO; with BPB, they are collectively referred to as the Originators).

BPB and CRO each act as the Servicers for their respective portfolios. BPB also acts as Master Servicer and Banca Etruria is the Back-up Servicer.

The ratings on the Class A1 Notes and Class A2 Notes address the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in October 2054.

The rating actions reflect an annual review of the transaction and concludes the UR-Pos status of the ratings. The Class A1 Notes and Class A2 Notes were placed UR-Pos following a material update to the methodology DBRS applies to monitor the counterparty risks of the transaction (see “Legal Criteria for European Structured Finance Transactions,” published on 19 February 2016).

This methodology incorporates DBRS’s new Critical Obligations Ratings (CORs), which were introduced in the “Critical Obligations Rating Criteria” methodology published on 2 February 2016, and also provide more granular rating levels for account bank institution replacements and eligible investments.

The ratings of Class A1 Notes and Class A2 Notes have been upgraded based upon the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the January 2016 payment date.
--Updated and more granular rating levels introduced by the “Legal Criteria for European Structured Finance Transactions” for account bank institution replacement triggers.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with the AA (sf) rating level for Class A1 Notes and Class A2 Notes.

The transaction is performing in line with DBRS’s expectations. As of the December 2015 payment date, the cumulative gross default ratio was 6.120% of the original collateral balance, as per the transaction definition, and delinquencies greater than 90 days were 0.942% of the portfolio balance.

Credit enhancement has increased considerably as a result of the deleveraging of the Class A1 Notes and Class A2 Notes, currently at 20.37% and 21.90% of their initial balance, respectively. Credit enhancement for the Class A1 Notes and Class A2 Notes is provided by the subordination of the Class B1 Notes, Class B2 Notes and the Reserve Account.

The portfolio annualised probability of default (PD) used has not changed (4.14%).

The Bank of New York Mellon (Luxembourg) S.A, Italian Branch acts as the Italian account bank provider (transaction bank) and paying agent and the Bank of New York Mellon, London Branch acts as an English account bank. The DBRS public ratings of The Bank of New York Mellon (Luxembourg) S.A, Italian Branch and of the Bank of New York Mellon, London Branch comply with the Minimum Institution Rating given the ratings assigned to the Class A1 Notes and Class A2 Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

J.P. Morgan Securities plc 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 public 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.

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.

DBRS conducted a review of an amendment to the servicer agreement, executed on 19 November 2015. The other transaction legal documents have remained unchanged since the most recent rating action, and were not reviewed.

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 the 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 19 February 2016, when the ratings of the Class A1 Notes and Class A2 Notes were placed UR-Pos. Prior to that, the ratings of the Class A1 Notes and Class A2 Notes were confirmed at A (high) (sf) on 26 February 2015.

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 4.14%, and a 10% and 20% increase in the base case PD.
-- Recovery rates used: base case recovery rates, corresponding to a recovery rate of 63.22% at the AA (sf) stress level for the Class A1 Notes and Class A2 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 A1 Notes and Class A2 Notes at their current ratings. 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 ratings of the Class A1 Notes and Class A2 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: Carlos Silva
Initial Rating Date: 17 December 2012
Initial Rating Committee Chair: Jerry van Koolbergen

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
-- 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.