DBRS Assigns Ratings to UBI SPV Group 2016 S.r.l.

DBRS Ratings Limited (DBRS) has today assigned a rating of A (low) (sf) to the Class A notes issued by UBI SPV Group 2016 S.r.l. (Issuer).

The rating of the Class A notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The Issuer is a limited liability company incorporated in 2016 under the laws of the Republic of Italy.

The securitisation has a three-year revolving period during which time the Issuer can purchase further portfolios at each payment date. Purchases of subsequent portfolios will be funded with the collections on the portfolio already transferred to the issuer and will be subject to eligibility criteria of the initial portfolio, portfolio limits defined in the transaction documents and performance triggers. The initial portfolio is composed of first lien residential mortgage loans with an outstanding balance equal to EUR 2,762,440,306.4 (including approximately EUR 14.6 million of accrued interest).

This is a multi-originator transaction of the banks belonging to the Italian banking group Unione di Banche Italiane S.p.a. The parent company of the group, Unione di Banche Italiane S.p.A, is Originator Master Servicer, Cash Manager and Account Bank of the transaction. Unione di Banche Italiane S.p.A. is publicly rated by DBRS at BBB (high) with a Stable trend. The back-up servicer facilitator is Zenith Services S.p.a. All transaction parties are suitably rated in accordance with the DBRS methodologies at the time of this rating to allow for the Class A notes to be rated A (low) (sf).

The initial portfolio has a weighted-average unindexed current loan-to-value (WACLTV) of 72.55% and an original weighted-average unindexed loan-to-value ratio of 88.35%. The original and current loan-to-value ratios are higher compared with the average of Italian RMBS transactions rated by DBRS. The loans in the transaction are mainly granted to Bank of Italy SAE code 600 for individuals (98.93%) and residually to SAE code 615 (small commercial borrowers 0.65%) and SAE code 614 (artisans 0.42%) (however, the borrowers in such latter categories, by application of the eligibility criteria, are acting as private customers only).

DBRS noted a higher price reduction in the updated property valuations provided by the Originator, compared with the house price declines registered in Italy. Moreover, the original property valuation incorporates the value of some ancillary non-residential guarantees. The WACLTV increases to 88.76% utilising the updated valuations (which also does not include the ancillary guarantee). DBRS considers in its analysis the updated valuations indexed back as a proxy for the original property value, resulting in a WACLTV of 81.18%.

Credit enhancement for the Class A notes is calculated as 24.50%, provided by the subordination of the portion of the Class J notes collateralised by the mortgage portfolio. The Cash Reserve has been established through an over-issuance of the Class B notes (4.00% of the initial amount of the Class A notes, EUR 83,424,000). The Cash Reserve is available to pay senior fees and interest on the Class A notes if collections are insufficient to meet the payments due. During the revolving period, the cash reserve is non-amortising. Post revolving period, the Cash Reserve amortises to a target amount of 4.00% of the outstanding amount of the Class A notes, subject to the following conditions: (1) No breach of the performance ratio, (2) the cash reserve at the previous payment date is not lower than the required amount and (3) no cash trapping condition has been activated. Additionally, the Reserve Fund has a floor at 50% of the initial amount.

The servicing agreement allows loans to be renegotiated. The renegotiations can be related to spread/interest rate reduction, renegotiation to fixed or floating loans or both capital and interest payment holidays. DBRS has modelled the possible impact of these renegotiations in its cash flow analysis based on the limits included in the transaction documents.

The Master Servicer can repurchase certain loans in the portfolio up to 15% of the outstanding portfolio during the life of the transaction and up to 5% of the outstanding portfolio on each payment date. The Originator can repurchase all the eligible mortgages (as defined in the transaction documents with specific criteria) without any limits each quarterly payment date, if performing.

For further details on the analysis please refer to the rating report available on www.dbrs.com.

The ratings are based upon DBRS review of the following analytical considerations:

-- Transaction capital structure and form and sufficiency of available credit enhancement.

-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to terms in which they have invested.

-- The transaction parties’ capabilities with respect to originations, underwriting, servicing and financial strength.

-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

-- Incorporation of a sovereign-related stress component in the stress scenarios due to the rating assigned by DBRS to the Republic of Italy of A (low), Stable trend.

-- The eligibility criteria and portfolio limits applicable to reinvestment proceeds and purchase of further portfolios during the revolving period.

As a result of the analytical considerations, DBRS derived a Base Case probability of default (PD) of 19.57% and loss given default (LGD) of 36.63%, which resulted in an expected loss of 7.17% using the European RMBS Credit Model. DBRS cash flow model assumptions stress the timing of defaults and recoveries, prepayment speeds and interest rates. Based on a combination of these assumptions, a total of 16 cash flow scenarios were applied to test the capital structure and ratings of the notes. The cash flows were analysed using Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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’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 these ratings include working papers and data on the Italian economy and housing market provided by: the European Central Bank, Eurostat, Bank of Italy, Istituto Nazionale di Statistica (ISTAT). DBRS reviewed the origination and servicing practices of Unione di Banche Italiane in May 2016. The Originator provided loan-level data and historical performance of mortgage portfolio dating back to 2010. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS has been supplied with third-party assessments. However, this did not impact the rating analysis.

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.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

These ratings concern a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of a change in the transaction parameters (probability of defaults and/or loss given default) on the rating of Class A notes, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- In respect of the Class A notes and a rating category of A(low)(sf), the PD of 40.33%, a 25% and 50% increase on the PD.
-- In respect of the Class A notes and a rating category of A(low)(sf), LGD of 48.91%, a 25% and 50% increase on the LGD.

DBRS concludes that for the Class A notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade of the Class A notes to BBB(sf).
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A notes to BBB(high)(sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A notes to BB(high) (sf).
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to downgrade the Class A notes to BB(high)(sf).
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB(low)(sf)
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A notes to BB(sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A notes to BB(high)(sf).
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A notes to BB(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 2016
Initial Rating Committee Chair: Quincy Tang, Managing Director

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction are listed below:

Legal Criteria for European Structured Finance Transactions
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Operational Risk Assessment for European Structured Finance Servicers
Operational Risk Assessment for European Structured Finance Originators
Unified Interest Rate Model for European Securitisations

The rating methodologies used in the analysis of this transaction can be found at:
http://www.dbrs.com/about/methodologies

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

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.