DBRS Upgrades Mercurius Funding N.V. / S.A.’s Class A Notes Rating and Removes UR-Positive

DBRS Ratings Limited (DBRS) has today upgraded the EUR 1,836,311,296.00 Class A notes issued by Mercurius Funding N.V. / S.A. (the Issuer) to AA (sf) from A (high) (sf) and has removed the Under Review with Positive Implications (UR-Pos.) designation.

The transaction is a cash flow securitisation collateralised by a portfolio of bank loans originated by Belfius Bank SA/NV (Belfius or the Originator) to small and medium-sized enterprises (SMEs) and self-employed individuals based in Belgium. The rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal payable on or before April 2035.

The rating action reflects an annual review of the transaction and concludes the UR-Pos. status of the rating. The Class A 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 provides more granular rating levels for account bank institution replacements and eligible investments.

The rating of the Class A notes has been upgraded based upon the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the March 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 the expected losses assumed in line with the AA (sf) rating level.

As of the March 2016 payment date, the cumulative balance of written-off loans was 0.460% of the original collateral balance, as per the transaction definition, and delinquencies greater than 90 days were 1.338% of the current collateral balance.

Credit enhancement has increased considerably as a result of the amortisation of the Class A notes, currently at 57.38% of their initial balance. Credit enhancement for the Class A notes (38.69%) is provided by the subordination of the Class B notes and the Reserve Account.

The portfolio annualised probability of default (PD) used has not changed (2.40%).

Belfius Bank SA/NV is the Account Bank for the transaction. The account bank reference rating of A – being one notch below the DBRS Long Term Critical Obligations Rating of Belfius Bank SA/NV at A (high) – 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 action include information provided by Belfius Bank N.V. - S.A. 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 19 February 2016, when the rating of the Class A notes was placed UR-Pos. Prior to that, on 13 May 2015 the rating of the Class A notes was confirmed at A (high) (sf) and removed from UR-Pos.

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):
-- PD rates used: base case PD of 2.40%, and a 10% and 20% increase in the base case PD.
-- Recovery rates used: base case recovery rates, corresponding to a recovery rate of 37.20% at the AA (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 10% and a hypothetical decrease in the recovery rate by 10% 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: Carlos Silva
Initial Rating Date: 8 May 2012
Initial Rating Committee Chair: Jerry van Koolbergen

Lead Surveillance Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director

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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
-- 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.