DBRS Takes Multiple Rating Actions on Three Credico Finance Transactions

DBRS Ratings Limited (DBRS) has today taken multiple rating actions in three Italian residential mortgage-backed securities transactions: Credico Finance 8 S.r.l. (CF 8), Credico Finance 9 S.r.l. (CF 9) and Credico Finance 10 S.r.l. (CF 10) as follows:

-- Class A Notes in CF 8 are confirmed at AAA (sf) and removed from Under Review with Negative Implications (UR-Neg.).
-- Class A Notes in CF 9 are confirmed at AAA (sf) and removed from UR-Neg.
-- Class A Notes in CF 10 are upgraded to AAA (sf), previously AA (sf).

Today’s rating actions are based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults.
-- Portfolio probability of default rate (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement available to the Class A Notes in all three transactions to cover the expected losses at the AAA (sf) rating level.
-- The replacement of the Transaction Bank by BNP Paribas Securities Services, Milan Branch, and the English Transaction Account Bank by BNP Paribas Securities Services, London Branch.

All three transactions closed between 2011 and 2012, and are securitisations of portfolios of Italian residential mortgage loans. Each transaction’s mortgage portfolio was originated and serviced by multiple Italian co-operative banks (BCCs). ICCREA Banca S.p.A. is the appointed Back-up Servicer (BUS) on all three transactions.

Banca Romagna Cooperativa Credito Cooperativo Romagna Centro e Macerone (BCC Romagna), one of the Originators and Servicers in CF 9 and CF 10, went into liquidation on 17 July 2015. The balance-sheet assets (excluding loans classified as in sofferenza) and some liabilities (deposits and senior bonds) were transferred to Banca Sviluppo S.p.A. (Banca Sviluppo). Banca Sviluppo has also assumed all the originator and servicer responsibilities relating to the securitised portfolios since the liquidation. There was no payment delay as a result of BCC Romagna’s liquidation. DBRS considers the transfer of the servicing activities to be satisfactory and the performance of the transactions not negatively impacted.

Portfolio Performance

The performances of the mortgage portfolios in all three transactions are within DBRS’s expectations. As of 29 February 2016, loans more than 90 days delinquent as a percentage of the outstanding performing portfolio balance were at 1.37%, 1.58% and 1.11% for CF 8, CF 9 and CF 10 respectively, all at the levels similar to 12 months ago. The cumulative defaulted loans as a percentage of the original portfolio balance at transaction closing increased slightly and remained low at 1.01%, 0.25% and 0.34% for CF 8, CF 9 and CF 10 respectively.

PD and LGD Assumptions

The weighted loan-to-value (LTV) ratio continues to decline in all three transactions as the transactions continue to deleverage. Decreased LTV reduces the loss severity in the event of loan defaults. DBRS consequently updated the PD and LGD assumptions on the remaining collateral pools for all three transactions. At the AAA (sf) rating level, the updated PD and LGD are 25.83% and 17.39% for CF 8, 26.13% and 18.53 for CF 9, and 26.64% and 21.87% for CF 10.

Credit Enhancement Available

The credit enhancement (CE) available to the Class A Notes in all three transactions has increased as the transactions continue to deleverage. The CE increased to 36.37% for CF 8, to 26.58 for CF 9, and to 29.70% for CF 10. The CE is provided through subordination and a liquidity facility in CF 8 and CF 9, and through subordination and a cash reserve in CF 10.

As a result of the increased CE available to the Class A Notes and the updated PD and LGD assumptions, DBRS has confirmed its AAA (sf) ratings on the Class A Notes in CF 8 and CF 9 and upgrades the rating on the Class A Notes in CF 10 to AAA (sf) from AA (sf).

Transaction Bank Replacement

On 31 March 2016, BNP Paribas Securities Services, Milan Branch replaced Deutsche Bank S.p.A. as the Transaction Bank and the Italian Paying Agent in all three transactions. At the same time, BNP Paribas Securities Services, London Branch replaced Deutsche Bank AG, London Branch as the English Transaction Bank and the Principal Paying Agent.

Prior to this rating action, the CF 8 and CF 9 ratings were UR-Neg. due to DBRS’s private rating on Deutsche Bank S.p.A. DBRS’s private ratings on the new account banks, BNP Paribas Securities Service, Milan Branch and London Branch both meet the Minimum Institution Rating criteria given the AAA (sf) rating assigned to each transaction’s Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology. Consequently, DBRS has removed its ratings on Class A Notes in CF 8 and CF 9 from UR-Neg.

JPMorgan Chase Bank, N.A. (AA (low)/R-1) is the swap counterparty in CF 8 and J.P. Morgan Securities plc in CF 9. Both entities’ DBRS public or private ratings meet the swap counterparty rating requirement given the ratings assigned to each transaction’s Class A Notes, as described 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 the “Master European Structured Finance Surveillance Methodology”, which can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

DBRS reviewed Appointment and Accession Agreements for all three transactions. A review of the rest of the transaction legal documents was not conducted as these documents have remained unchanged since the most recent rating action.

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 the sovereign risk impact on Structured Finance ratings, please refer to DBRS “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 the rating actions include the investor reports and the amendment documents provided by Deutsche Bank Trust & Securities Services and the loan-by-loan data from European Data Warehouse 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 CF 8 and CF 9 took place on 29 May 2015 when DBRS placed the ratings on the Class A Notes UR-Neg. The last rating action on CF 10 took place on 19 February 2016 when DBRS confirmed its AA (sf) rating on the Class A Notes and removed from UR-Neg. The lead responsibilities for all three transactions have been transferred to Kevin Ma.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- DBRS expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- The base case PD and LGD of the CF 8 pool of mortgages are 2.53% and 3.53%, respectively. At the AAA (sf) rating level, the corresponding PD is 25.83% and the LGD is 17.39%.

-- The base case PD and LGD of the CF 9 pool of mortgages are 2.71% and 1.87%, respectively. At the AAA (sf) rating level, the corresponding PD is 26.13% and the LGD is 18.53%.

-- The base case PD and LGD of the CF 10 pool of mortgages are 3.14% and 3.14%, respectively. At the AAA (sf) rating level, the corresponding PD is 26.64% and the LGD is 21.87%.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, with regard to CF 8, if the LGD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to be at AAA (sf).

CF 8 Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

CF 9 Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

CF 10 Class A Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (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.

CF 8

Initial Lead Analyst: Alessio Pignataro
Initial Rating Date: 13 April 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Kevin Ma
Rating Committee Chair: Quincy Tang

CF 9

Initial Lead Analyst: Alessio Pignataro
Initial Rating Date: 11 July 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Kevin Ma
Rating Committee Chair: Quincy Tang

CF 10

Initial Lead Analyst: Alessio Pignataro
Initial Rating Date: 25 April 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Kevin Ma
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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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
-- 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