DBRS Downgrades Rating on Cassa Centrale Finance 3 S.r.l.

DBRS Ratings Limited (DBRS) has today downgraded its rating on the Class A Notes issued by Cassa Centrale Finance 3 S.r.l. (the Issuer) to AA (high) (sf) from AAA (sf) and maintained the Under Review with Negative Implications (UR-Neg.) status.

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 2049.

The Issuer is a securitisation of the first-ranking Italian residential mortgages (77.2%) and agrarian loans (22.8%) originated and serviced by 14 Cooperative Italian banks: Mediocredito Trentino A.A., BCC Cherasco, Cassa Rurale di Aldeno e Cadine, Cassa Rurale Lavis Valle di Cembra, Cassa Rurale di Pergine, BCC Centromarca, Cassa Rurale Alto Garda, Cassa Rurale Pinetana Fornace e Seregnano, Cassa Rurale Adamello–Brenta, Cassa Rurale di Rovereto, Banca Alto Vicentino Credito Cooperativo Schio, Cassa Rurale Centrofiemme Cavalese, Banca di Cavola e Sassuolo, and Cassa Rurale di Folgaria. The transaction closed in December 2009, and DBRS assigned a AAA (sf) rating to the Class A Notes in May 2011.

The one-notch downgrade on the rating of the Class A Notes follows the downgrade of DBRS’s private rating on the Transaction Bank, Deutsche Bank S.p.A., on 29 September 2015 and the update to DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology in February 2016. DBRS placed Deutsche Bank S.p.A.’s private rating UR-Neg. in April 2016. Consequently, the rating on the Class A Notes remains UR-Neg. Upon resolution of the UR-Neg. status of the Transaction Bank, DBRS shall conduct a further analysis in accordance with the relevant rating methodology and take the appropriate rating action, resolving the current UR-Neg. status of the Class A Notes.

The portfolio’s performance has been stable since the last rating review. As of 31 March 2016, loans more than 30 days in arrears were at 4.02% of the outstanding principal balance, up from 3.57% at the last rating review. The cumulative default ratio remains at 0.00%. DBRS has maintained the probability of default (PD) and loss given default (LGD) assumptions as in the previous rating review.

The source of credit enhancement for the Class A Notes consists of the subordination of the junior notes. As of 29 April 2016, the credit enhancement to the Class A Notes, as a percentage of the outstanding principal balance, is 30.01%, up from 25.51% at the last rating review. The transaction also benefits from a Liquidity Reserve available to cover the senior expenses shortfall. The Liquidity Reserve has been funded by each originator (except Mediocredito Trentino A.A.) and currently stands at EUR 25.65 million.

JP Morgan Securities Ltd (JP Morgan) and Mediocredito Trentino A.A. (Mediocredito) are the swap counterparties in the transaction. JP Morgan’s DBRS private rating meets the required rating given the rating assigned to the Class A Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. Mediocredito is not compliant with DBRS’s swap counterparty criteria. As a result, DBRS did not give any credit to the hedging arrangement in the cash flow analysis.

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 is undertaking a review and will remove the rating from this status as soon as it is appropriate.

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 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 Deutsche Bank AG, London Branch, and the loan-by-loan data from 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 25 June 2015, when the rating on the Class A Notes was confirmed at AAA (sf) and remained UR-Neg. 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 6.02% and 1.95%, respectively. The corresponding levels at the AA (high) (sf) rating level are 25.66% and 12.68%.

-- 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 AA (high) (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 AA (high) (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 remain at AA (high) (sf).

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

The rating is UR-Neg. Generally, the conditions that lead to the assignment of reviews are resolved within a 90 day period.

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: Alessio Pignataro, Vice President
Initial Rating Date: 5 May 2011
Initial Rating Committee Chair: Claire Mezzanotte, Group Managing Director

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

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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

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