DBRS Removes UR-Pos. and Upgrades Rating on Credico Finance 12 S.r.l.

DBRS Ratings Limited (DBRS) has today removed the Under Review with Positive Implications (UR-Pos.) status and upgraded to AA (sf) from A (sf) the rating on the Class A notes issued by Credico Finance 12 S.r.l. (the Issuer).

The rating assigned to the Class A notes addresses the timely payment of interest and ultimate payment of principal.

The rating action reflects an annual review of the transaction and concludes the UR-Pos. status of the rating. The rating on the Class A notes was previously placed UR-Pos. as a result of the updated publication of DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology (the Legal Criteria) on 19 February 2016. The Legal Criteria incorporated the Critical Obligations Ratings (COR) into counterparty replacement and other rating threshold levels to reflect an updated opinion on the reduced risk that these critical exposures could pose to structured finance transactions. As part of the Legal Criteria update, DBRS also provided more granular rating levels for account bank institution replacements and eligible investments.

The upgrade of the rating on the Class A Notes is based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of June 2016.
-- Default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A notes to cover the expected losses at the AA (sf) rating level.

Credico Finance 12 S.r.l. is a securitisation of first lien Italian residential mortgages originated and serviced by 35 co-operative banks (BCCs). The transaction follows the standard structure under Italian securitisation law and closed in August 2013.

As of June 2016, 30-60 day arrears are at 0.90%, up slightly from 0.84% in June 2015. The 90+ delinquency ratio is at 1.75%, up from 1.27% in June 2015. The cumulative default rate is currently at 0.44%.

As of the June 2016 payment date, credit enhancement to the Class A notes stands at 20.45%, up from 16.70% in April 2015. Credit enhancement to the Class A notes consists of subordination of the Class B Notes and a portion of the Cash Reserve.

The transaction benefits from a Cash Reserve that is fully available to cover senior fees and interest, and is partially available to cover principal shortfall on the Class A notes. The Cash Reserve is non-amortising and is currently at its target level of EUR 41,658,000.

BNP Paribas Securities Services SCA, Milan Branch and BNP Paribas Securities Services SCA, London Branch are the Transaction Bank and English Transaction Bank for the transaction, respectively. The transaction bank holds the payment account, collection account, cash reserve accounts and the reserve account. The English Transaction Bank holds the investment account and principal amortisation reserve account for the Issuer. The DBRS private ratings of both entities comply 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.

A review of the transaction’s 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. These 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 include reports provided by Accounting Partners S.r.l. (the Computation Agent), and data from European Data Warehouse 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 purpose 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 on the Class A notes was placed UR-Pos. Prior to that, on 12 August 2015, DBRS confirmed the ratings on the Class A notes at A (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies are available on 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 3.18% and 7.97%, respectively.
-- 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 A notes would be expected to remain the same at AA (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 the same at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to remain the same at AA (sf).

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

For further information on DBRS historic default rates published by the European Securities and Markets Authority (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
Initial Rating Date: 12 August 2013
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Andrew Lynch, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, 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

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.