DBRS Upgrades Rating on ResLoc IT S.r.l.’s Class A Notes

DBRS Ratings Limited (DBRS) has today upgraded its rating on the Class A Notes issued by ResLoc IT S.r.l. (the Issuer) to A (sf) from A (low) (sf).

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Maturity Date in October 2065.

The upgrade of the rating on the Class A Notes is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults, as of March 2016.
-- Portfolio default rate (PD), 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 (sf) rating level.

The Issuer is a securitisation of below-prime quality, first-ranking Italian residential mortgage loans originated and serviced by Credito Fondiario S.p.A. (formerly Fonspa Bank) (the Servicer). The transaction closed in July 2009, and DBRS assigned a rating to the Class A Notes in June 2011.

The portfolio’s performance has stabilized since the last rating review. As of 15 March 2016, delinquencies greater than 90 days were at 28.58% of the outstanding principal balance, including the defaulted loans. The cumulative default ratio is currently at 13.66%. DBRS has maintained the PD and LGD assumptions as in the previous rating review.

On 7 August 2015, the Issuer and the swap counterparty, Morgan Stanley & Co. International plc, agreed to terminate the swap agreement. By removing the swap, the transaction is benefitting from a higher excess spread that can be used to offset the new and the existing loan defaults.

Credit enhancement for the Class A Notes consists of the subordination of the junior notes. As of 1 April 2016, the credit enhancement (as a percentage of the performing portfolio balance) to the Class A Notes is 19.26%, up from 16.28% at the last rating review. The transaction also benefits from a Cash Reserve Fund that provides liquidity support and is currently at its target amount level of EUR 3 million.

Citibank N.A., London Branch is the Transaction Account Bank to the transaction. The DBRS private rating of Citibank N.A., London Branch 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 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.

DBRS reviewed the amended documents executed on 7 August 2015 related to the cancelation of the swap. A review of the rest of the transaction legal documents was not conducted, as they 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 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 action include investor reports provided by Citibank N.A., London Branch, and the loan-by-loan data from the Servicer.

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 9 June 2015, when the rating on the Class A Notes was downgraded to A (low) (sf) from A (high) (sf). The lead responsibilities for this transaction 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 the changing 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 current pool of mortgages for the Issuer are 19.19% and 27.60%, respectively. The corresponding levels at the A (sf) rating level are 41.44% and 43.34%.

-- 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 of Class A Notes would be expected to remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at A (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to BBB (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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.

Initial Lead Analyst: Keith Gorman, Senior Vice President
Initial Rating Date: 7 June 2011
Initial Rating Committee Chair: Claire Mezzanotte, Managing Director

Lead Surveillance Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Diana Turner, Senior Vice President

DBRS Ratings Limited
20 Fenchurch Street,
31st Floor,
London EC3M 3BY 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
-- 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 analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375