DBRS Upgrades Abruzzo 2015 RMBS S.r.l. Class A Notes

DBRS Ratings Limited (DBRS) has today upgraded its rating on the Class A Notes issued by Abruzzo 2015 RMBS S.r.l. (Abruzzo 2015) to A (high) (sf) from A (sf).

Today’s rating actions are based on the following analytical considerations, as described more fully below:

-- Portfolio’s current performance, in terms of delinquencies and defaults.
-- Portfolio’s probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement available to the Class A Notes to cover the expected losses at the A (high) (sf) rating level.

Abruzzo 2015 closed in August 2015, and is a securitisation of a portfolio of Italian first-lien mortgage loans originated and serviced by Banca Tercas S.p.A. (Banca Tercas) and Banca Caripe S.p.A. (Banca Caripe). On 18 July 2016, Banca Tercas and Banca Caripe were merged by incorporation into Banca Popolare di Bari S.C.p.A. (Banca Bari). Following the merger, Banca Bari assumed all the rights and obligations of Banca Tercas and Banca Caripe in Abruzzo 2015.

The portfolio is performing within DBRS’s expectations. As of 30 April 2016, loans more than 90 days delinquent as a percentage of the outstanding non-defaulted collateral pool balance were at 0.64%, and loans more than 30 days delinquent were at 2.47%. There were no defaulted loans. DBRS has maintained the base case PD and LGD assumptions for the remaining collateral pool at 10.11% and 13.43%, respectively.

The credit enhancement (CE) available to the Class A Notes has increased to 16.69% as of the 31 May 2016 payment date as the transaction deleverages. The CE is provided through the subordinated Notes and the overcollateralization (OC). The transaction’s priority of payment allocates all cash remaining in the account after payments of the senior expenses, the net swap amount, the Class A interest due and the replenishment of the Liquidity Reserve to the principal of the Class A Notes. Consequently, the paydown of the Class A Notes principal balance will be faster than the collateral balance resulting in the build-up of the OC currently at EUR 6.6 million. The pace in the build-up of the OC is faster than expected and has prompted the upgrade of the Class A Notes.

Banca Bari is the servicer to the transaction. DBRS assessed the likely impact on the Class A Notes in the event of Banca Bari’s default. DBRS concludes that there is sufficient liquidity provided through the Liquidity Reserve deposited with the Account Bank. In addition, there is a back-up servicing arrangement, independent Cash Manager and independent Calculation Agent in place to mitigate the payment disruption risks. BNP Paribas Securities Services, Milan Branch (BNPP Milan) is the Account Bank and the Cash Manager. Securitisation Services S.p.A. is the Calculation Agent and Zeneth Service S.p.A. is the Back-Up Servicer to the transaction.

The Liquidity Reserve is non-amortising and is currently at its target amount of EUR 11.8 million. It provides liquidity support to the Class A Notes.

DBRS placed Italy’s sovereign rating Under Review with Negative Implications on 5 August 2016 (http://www.dbrs.com/research/297987/dbrs-places-italy-a-low-under-review-with-negative-implications-on-heightened-risks.html). Following the sovereign rating action, DBRS applied additional stresses in the cash flow analysis to test the ratings on the Class A Notes in the event of a sovereign rating downgrade. DBRS concludes that the likelihood of a downgrade on the Class A Notes in these stressed scenarios is remote.

DBRS’s private rating of BNPP Milan complies with the Minimum Institution Rating, given the A (high) (sf) rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

J.P. Morgan Securities plc is the swap counterparty to the transaction and has a DBRS private rating that meets the swap counterparty rating requirement given the ratings assigned to the Class A Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. In addition, JPMorgan Chase Bank, N.A. (rated AA (low)/R-1(middle)) is acting as the swap guarantor in the transaction.

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 the sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating action include the investor reports provided by Securitisation Services S.p.A. and the loan by loan 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 purposes of providing this rating to be 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.

This is the first rating action since the Initial Rating Date.

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 changing the 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 assumptions for the remaining collateral pool are 10.11% and 13.43%, respectively. At the A (high) (sf) rating level, the corresponding PD is 26.93% and the LGD is 29.03%.

-- 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 be 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 be at A (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to be at A (low) (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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (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: Davide Nesa, Senior Financial Analyst
Initial Rating Date: 11 August 2015
Initial Rating Committee Chair: Quincy Tang, Managing Director

Lead Surveillance Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Quincy Tang, Managing Director

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