DBRS Upgrades Dominato Leonense S.r.l.’s Class A Notes Rating and Removes UR-Positive Status

DBRS Ratings Limited (DBRS) has today upgraded the rating on the Class A Notes issued by Dominato Leonense S.r.l. (the Issuer) to A (high) (sf) from A (sf) and has removed the Under Review with Positive Implications (UR-Pos.) designation.

Dominato Leonense S.r.l. is a securitisation of prime residential mortgage loans, the majority of which were originated by Cassa Padana – Banca di Credito Cooperativo. The rest of the portfolio was originated by other three cooperative banks purchased by Cassa Padana. The transaction closed in June 2014 and follows the Italian securitisation law.

The Class A Notes rating was 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).

The rating action reflects the following analytical considerations:
-- Updated and more granular rating levels introduced by the “Legal Criteria for European Structured Finance Transactions” methodology for account bank institution replacement triggers.
-- Portfolio performance, in terms of delinquencies and defaults, as of the March 2016 payment date.
-- Updated portfolio default rate, loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement for the Class A Notes to cover the expected losses at the A (high) (sf) rating level.

The mortgage pool is well seasoned (more than seven years) and it is geographically concentrated in the regions of Lombardy (57.95%) and Veneto (27.66%). The transaction has a low weighted-average current loan-to-value ratio of 45.39% and weighted-average remaining maturity of almost 13 years.

The transaction is performing within DBRS’s initial expectations. The 90+ delinquency ratio as a percentage of the performing balance of the portfolio increased over the year and it is currently at 1.12%. There are no defaulted loans to date.

The credit enhancement for the Class A Notes reached 28.8% at the March 2016 payment date and is provided by the subordination of the Class B Notes. The reserve fund cannot amortise during the life of the transaction and is available to pay senior fees, interest on the Class A Notes and to cover any shortfall in principal of the Class A Notes with a floor of 1.00%. The reserve fund is currently at the initial and target level of EUR 5.37 million.

BNP Paribas Securities Services, Milan Branch (the Account Bank) holds the Treasury Account for the transaction. The DBRS public rating of the Account Bank complies with the Minimum Institution Rating assigned to the Class A Notes, as described in the DBRS “Legal 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.”

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 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 commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports provided by Accounting Partners S.r.l. and 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 DBRS placed the rating on the Class A Notes Under Review with Positive Implications. The lead responsibilities for this transaction have been transferred to Antonio Di Marco.

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

To assess the impact of the 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):
-- DBRS expected a lifetime base-case probability of default (PD) and LGD for the pool based on a review of the current receivables. 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 current pool of mortgages for the Issuer are 14.38% and 10.33%, respectively. At the A (high) (sf) rating level, the corresponding PD is 34.78% and the LGD is 25.71%.
-- DBRS assumed that the time of recovery lag was 72 months.
-- 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, if the LGD increases by 50%, the rating on the Class A Notes would be expected to remain at A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to remain at A (high) (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating on the Class A Notes would be expected to remain at A (high) (sf).

Class A Notes Risk Sensitivity:

-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf) For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Davide Nesa, Senior Financial Analyst
Initial Rating Date: 6 June 2014
Initial Rating Committee Chair: Quincy Tang, Managing Director

Lead Surveillance Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Quincy Tang, Managing Director

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom

Registered in England and Wales: No. 7139960.

The rating methodologies and criteria 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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Unified Interest Rate Model for European Securitisations

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