DBRS Confirms Rating on BPL Mortgages S.R.L., Series V’s Class A-2012 Notes, Assigns Ratings to the Class A-2016 Notes Following Amendment

DBRS Ratings Limited (DBRS) has assigned new ratings to the following notes issued by BPL Mortgages S.R.L., Series V (Issuer):

--EUR 995,100,000 Class A-2016 Notes rated A (high) (sf)

DBRS has also confirmed the rating on the Class A-2012 Notes, previously (Class A) rated A (high) (sf).

The ratings assigned to the Class A-2012 and Class A-2016 Notes (together, the Class A Notes) address timely payment of interest and ultimate payment of principal.

The amendment is a restructure of BPL V, which is a securitisation of a portfolio of Italian first and second lien residential mortgage loans originated and serviced by Banco Popolare S.C. (BP). Under the proposals of the restructure, the Issuer will purchase additional mortgage loans equal to EUR 1,072 million. The Seller repurchases non-performing loans equal to EUR 268.5 million and performing loans equal to EUR 586.1 million. In addition, new Class A Notes were issued (the Class A-2016 Notes) and rank parri passu with the Class A-2012 Notes.

The purchase price payable by the issuer is partially offset by the consideration payable for the Class A-2016 Notes. The outstanding purchase price payable by the issuer is offset by the repurchase price payable by seller in relation to the repurchased mortgage loans. The excess funds following repurchase by BP will be used to partially redeem the Class B Notes, with excess thereafter paid to the residuals. The cut-off date of the transfer portfolio is 10 October 2016. Cash received from 30 September until 10 October is equal to EUR 3.18 million and will be used to pay down the Class A-2012 and Class A-2016 Notes.

As of the last rating action, the credit enhancement on the Class A Notes, provided by subordination of the Class B Notes, has been reduced to 22%. The transaction also benefits from a non-amortising reserve fund, which provides liquidity support to the Class A Notes. The balance of the reserve remains unchanged at EUR 64,000,000 and represents 3% of the Class A Notes post-restructure. All other structural features remain unchanged.

The post-restructure mortgage portfolio (cut-off date 10 October 2016) is equal to EUR 2,741 million. The weighted-average seasoning of the portfolio is equal to 6.12 years, with a weighted-average remaining term of 18.3 years. Origination is concentrated towards recent vintages (70.04% post-2008). This is considered a credit positive for the transaction, as recent vintages have exhibited stronger performance. The weighted average current loan-to-value (CLTV) is calculated at 64.86%. 14.87% of the portfolio consists of loans with a prior ranking balance, with 3.41% consisting of external prior ranking balances.

The weighted-average coupon being paid by the loans is 1.97%. Approximately 21.52% of the loans pay a fixed rate of interest, 37.52% pay interest linked to one-month Euribor (EUR 1M), 38.01% pay interest linked to three-month Euribor (EUR 3M), 0.50% pay interest linked to six-month Euribor (EUR 6M) and 2.44% pay an interest rate linked to the ECB rate. In comparison, the interest payable on the Class A-2012 and Class A-2016 Notes is EUR 1m plus 30 basis points (bps) and EUR 1m plus 25 bps respectively. The basis and interest risk present is unhedged. In addition, 0.16% of the portfolio consists of loans with a capped interest rate, where the weighted-average capped rate is 6.56%.

The mortgage portfolio contains non-standard mortgage products. Optional mortgages represent 29.62% of the portfolio. Optional mortgages provide the borrower with the option to: (i) switch from a fixed rate to a floating rate, or (ii) switch from a floating rate to a fixed rate. The option can be exercised every three years from the origination date. 1.86% of the current balance of the portfolio is constituted by offset mortgages (Mutuo Alberto), which give the option to the borrower to set off the instalment amount with interest accrued in the current account. Borrowers hold deposits with BP, and as such, the transaction is exposed to set-off risk. DBRS calculates the set-off exposure at 54 bps.

BNP Paribas Securities Services, London branch and BP are the Additional Transaction Bank and Transaction Bank for this transaction, respectively. The Additional Transaction Bank holds the collection and expenses account, while the Transaction Bank holds the cash reserve account. The DBRS ratings of BNP Paribas Securities Services, London branch and BP, are at least equal to the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in the DBRS Legal Criteria for European Structured Finance Transactions.

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

-- Transaction capital structure, proposed ratings and form and sufficiency of available credit enhancement. Credit Enhancement on the Class A Notes is equal to 22% and consists of subordination of the collateralised Class B Notes (14.31%) and Overcollateralisation (7.69%).
-- Credit Quality of the mortgage loan portfolio. DBRS calculated probability of default (PD), loss given default (LGD) and expected loss outputs on the mortgage loan portfolio.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Class A-2012 and Class A-2016 Notes according to the terms of the transaction documents. The transaction cash flows were modelled using portfolio default rates and loss given default outputs provided by the European RMBS Model. Transaction cash flows were modelled using Intex DealMaker.
-- Incorporation of a sovereign-related stress component. The sovereign rating of the Republic of Italy is A (low)/Under Review with Negative Implications and R-1 (low)/Stable as of the date of this rating. DBRS has run a sensitivity analysis in the event of a downgrade of the sovereign rating.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and consistency with DBRS’s Legal Criteria for European Structured Finance Transactions methodology.

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.

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 Banco Popolare S.C.

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

DBRS was 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.

The rating on Class A-2016 Notes concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

The last rating action on this transaction took place on April 14 2016, when the Class A-2012 notes were upgraded.

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

To assess the impact of the 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”):

In respect of the Class A Notes, PD rate of 33.49% and an LGD rate of 58.75%, corresponding to a A (high) (sf) rating scenario, were stressed assuming a 25% and 50% increase to the PD and LGD:

-- A hypothetical increase of the base case PD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf).
-- A hypothetical increase of the base case PD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (low) (sf).
-- A hypothetical increase of the base case LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (low) (sf).
-- A hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (sf).
-- A hypothetical increase of the base case PD by 25% and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (low) (sf).
-- A hypothetical increase of the base case PD by 25% and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (high) (sf).
-- A hypothetical increase of the base case PD by 50% and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (high) (sf).
-- A hypothetical increase of the base case PD by 50% and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (sf).

For further information on DBRS historical 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: 24 December 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Analyst: Asim Zaman, Assistant Vice President
Rating Date: 28 October 2016
Rating Committee Chair: Quincy Tang, Managing Director

Lead Surveillance Analyst: Antonio Di Marco

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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 (14 September 2016)
-- Unified Interest Rate Model Methodology for European Securitisations (12 October 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (14 October 2016)
-- Operational Risk Assessment for European Structured Finance Originators (14 October 2016)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (25 August 2016)

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