DBRS Confirms Ratings on MARCHE M6 S.r.l.

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the bonds issued by MARCHE M6 S.r.l. (MM6 or the Issuer):

-- Class A1 notes confirmed at AAA (sf).
-- Class A2 notes confirmed at AAA (sf).
-- Class A3 notes confirmed at AAA (sf).

The confirmation of the ratings on the Class A1, Class A2 and Class A3 notes are based on the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of delinquencies and defaults, as of the April 2016 payment date.
-- Default, recovery and loss assumptions on the collateral pool.
-- Current available credit enhancement to the Class A1, Class A2 and Class A3 Notes to cover the expected losses at the AAA (sf) rating level.
-- Repurchase agreement of sofferenza loans, executed on 20 June 2016.

MM6 is a static securitisation of a portfolio of first lien mortgage loans extended to obligors located in Italy. The transaction closed in July 2013, with Banca delle Marche S.p.A. (BDM) being the originator and servicer for the transaction.

Following the recent adoption of the Bank Resolution and Recovery Directive (BRRD) in Italy on 16 November 2015, the Italian government has passed a law decree on 22 November 2015 providing for the liquidation of BDM after the transfer of all balance sheet assets (excluding loans classified as sofferenza) and some liabilities (deposits and senior bonds) to a new bridge bank, Nuova Banca delle Marche S.p.A. (NBDM). The transfer of servicing duties from BDM to NBDM removed the main concern surrounding the continuity and effectiveness of the activities of the servicer of MM6.

The resolution plan also provided the transfer of all the loans classified as sofferenza as of the end of September 2015 to a “bad bank”: “REV-Gestione Crediti Societa’ per Azioni” (REV). Loans that were not part of securitisation transactions have been transferred to REV on 1 February 2016, while securitised loans classified as sofferenza as of end of September 2015 have been repurchased back by NBDM on 20 June 2016 and then will be transferred to REV.
In the context of MM6, the repurchase price (outstanding balance plus accrued interest) of loans classified as sofferenza as of the end of September 2015 amounted to EUR 5,287,414. DBRS has reviewed the repurchase agreement and expects the repurchase to have a positive impact on the transaction in terms of credit enhancement, given that on the next payment date there will be additional available funds to pay down the principal on the Class A notes and also considering that DBRS had assumed no recoveries coming from such loans in its analysis. On the other hand, it should be noted that since the repurchase has been structured with a favourable price for the Issuer, the transaction is exposed to claw back risk.

As of the April 2016 payment date, the 90+ delinquency ratio has been quite stable over the year and it is currently at 0.51%, down from 0.74% in April 2016. The current cumulative default ratio (as a percentage of the original portfolio) increased over the year and it is currently at 2.18%.

The Class A1, Class A2 and Class A3 notes are supported by the subordination of the Class J Notes. Credit enhancement for the Class A1, Class A2 and Class A3 notes (as a percentage of the performing portfolio) increased to 29.48%.

The transaction benefits from a cash reserve which is available to cover senior payments and interest under the senior notes during the life of the transaction. The cash reserve amortises with the balance of the senior notes and will be reduced to zero on the payment date on which the senior notes will be redeemed in full. The reserve fund is at the current target level of EUR 47.1 million.

BNP Paribas Securities Services, Milan branch and BNP Paribas Securities Services, London branch are the Italian and English Account Bank for the transaction, respectively. The DBRS private ratings of each BNP Paribas Securities Services, Milan branch and BNP Paribas Securities Services, London branch complies with the Minimum Institution Rating, given the rating assigned to the Class A1, Class A2 and Class A3 notes, as described in the DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The DBRS private rating of J.P. Morgan Securities plc is above the First Rating Threshold 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”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. DBRS has reviewed the repurchase agreement documentation executed on 20 June 2016. A review of any other 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’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 include legal documentation and information received from the legal counsel to the NBDM, payment and investor reports provided by Securitisation Services S.p.A., servicer reports provided by NBDM and loan by loan 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 9 July 2015, when DBRS confirmed the rating on the Class A1, Class A2 and Class A3 notes at AAA (sf). The lead responsibilities for this transaction have been transferred to Antonio Di Marco.

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):
-- DBRS expected a lifetime base case probability of default (PD) and loss given default (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 6.61% and 5.11%, respectively. At the AAA (sf) rating level, the corresponding PD is 28.86% and the LGD is 27.98%.
-- 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 the Class A1 notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A1 notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A1 notes would be expected to remain at AAA (sf).

Class A1 notes Risk 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)

Class A2 notes Risk 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)

Class A3 notes Risk 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 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: Alastair Bigley, Senior Vice President
Initial Rating Date: 16 July 2013
Initial Rating Committee Chair: Quincy Tang, Managing Director

Lead Surveillance Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Diana Turner, Senior Vice President

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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
-- 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.