Press Release

DBRS Assigns Rating to Asti Group PMI S.r.l.

Structured Credit
March 16, 2017

DBRS Ratings Limited (DBRS) has today assigned the following final rating to the Class A Notes issued by Asti Group PMI S.r.l. (the Issuer or Asti Group PMI):

-- EUR 700,000,000 Class A Asset Backed Floating Rate Notes due 2080 at A (high) (sf)

The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the Maturity Date in October 2080. The Issuer has also issued EUR 485,339,000 Class B Asset Backed Floating Rate Notes due 2080 (the Junior Notes), which have not been rated by DBRS.

Asti Group PMI is a cash flow securitisation collateralised by a portfolio of performing mortgage and non-mortgage loans to Italian small- and medium-sized enterprises, entrepreneurs, artisans and producer families granted by Cassa di Risparmio di Asti S.p.A. (CR Asti; 72.3% of the initial portfolio) and Cassa di Risparmio di Biella e Vercelli S.p.A. (BiverBanca; 27.7% of the initial pool). CR Asti and BiverBanca (together, the Originators) will act as the Servicers of their respective portfolios. As BiverBanca has been part of CR Asti banking group since 2012, the transaction comprises a single waterfall with full cross-collateralisation between the two portfolios since the closing date.

The transaction includes a 17-month revolving period scheduled to end in October 2018. During this period, each Originator may sell new receivables (Subsequent Portfolios) to the Issuer subject to certain conditions and limitations. The revolving period will end prematurely upon the occurrence of certain events, including gross cumulative defaults exceeding certain thresholds, the inability of the Issuer to fully replenish the cash reserve and the insolvency of one of the Originators. Additionally, if the Issuer terminates the appointment of either CR Asti or BiverBanca as Servicer or if one of the two banks does not fulfil its own obligations under the transaction documents, the revolving period will end prematurely only for the affected Servicer/Originator. However, the unaffected Originator will have to fulfil all the revolving conditions and limitations, as these are based on the overall portfolio and not on the single pools. The purchase of new receivables will be funded through principal collections as well as excess spread to make up for any defaulted loans.

The economic effect of the transfer of the portfolio to the Issuer took place on 31 December 2016 (the Initial Valuation Date). As at the Initial Valuation Date, the overall portfolio consisted of 9,292 loans extended to 7,682 borrowers, with an aggregate principal balance of EUR 1,185.3 million, of which EUR 3.3 million was in arrears for fewer than 31 days.

The rating assigned to the Class A Notes is based on the following analytical considerations:

PORTFOLIO CHARACTERISTICS
-- The Portfolio Sale Conditions, the Common Criteria and the Subsequent Portfolio Specific Eligibility Criteria, based on which DBRS has built the worst-case portfolio. In general, the portfolio is not expected to significantly differ from the initial one.

-- The initial portfolio has a weighted-average life (WAL) of 5.3 years. However, DBRS calculated that during the revolving period, the WAL might increase up to 6.8 years, given the maximum weighted-average maturity defined under the Portfolio Sale Conditions (13.0 years for mortgage loans and 7.0 years for non-mortgage loans) and the loan-term modifications that allow increases of the loans’ maturities.

-- DBRS analysis assumed a worst case portfolio allowed by the eligibility criteria and portfolio limits. In particular, the analysis was based on maximising the portion of the pool originated by BiverBanca (which can represent up to 28%), as it carries a higher expected annualised probability of default (PD). Afterwards, DBRS maximised the mortgage portion of the pool (which can represent up to 65%), as it carries the highest loss expectations because of the higher associated PD and longer maturities.

-- DBRS recovery assumptions for the mortgage portion of the pool are low because of the absence of Portfolio Sale Conditions relating to the quality of the security (mainly the absence of any limits related to loan-to-values, liens or collateral types).

-- Per DBRS’s industry classification, the initial portfolio exhibits a high concentration in the Building & Development sector (41.3%).

-- Apart from the top borrower, which represents 1.6% of the portfolio, the initial portfolio is relatively granular, with the top ten borrowers accounting for 7.9% and the top 20 borrowers for 11.6%. The Portfolio Sale Conditions limit the top one and top ten exposures to 1.8% and 9.0% of the portfolio, respectively.

TRANSACTION CHARACTERISTICS
-- After the end of the revolving period, all excess spread will be used to amortise the Class A Notes.

-- The interest rate risk is strongly mitigated by the presence of a 3.5% (per annum) cap on the Class A Notes.

-- The initial exposure to set-off risk is EUR 58.1 million, 4.9% of the initial portfolio balance (considering the full benefit of the deposit guarantee scheme). The Portfolio Sale Conditions limit the increase of set-off risk during the revolving period to 5.0% of the pool. Additionally, a Set-Off Reserve initially funded with EUR 17.8 million (and to be maintained at 1.5% of the portfolio outstanding balance after the end of the revolving period) will be available to pay down the Class A Notes following the insolvency of any of the Originators.

-- Unipol Banca S.p.A. (Unipol) has been appointed has Back-Up Servicer and has contractually agreed to replace each Servicer within seven calendar days following a Servicer termination. Nevertheless, DBRS considers that the transfer of servicing to Unipol is likely to take considerably more time and has modelled a loss in its cash flow model to account for commingling risk sized to cover senior expenses and interest due on the Class A Notes for up to three months of Servicer interruption.

-- The credit enhancement (CE) for the Class A Notes is 42.1%, which DBRS considers sufficient to cover expected losses assumed in line with an A (high) (sf) rating level. The CE is provided by the subordination of the Junior Notes and an amortising cash reserve initially funded with EUR 14.0 million and to be maintained at 2.0% of the Class A Notes’ balance, with a EUR 7.0 million floor.

-- The soundness of the legal structure and the presence of legal opinions that address the true sale of the assets to the trust and the non-consolidation of the Issuer, as well as the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS determined the rating of the Class A Notes per the principal methodology as follows:

-- The annualised weighted-average PD for the worst-case portfolio, which was determined using the historical data supplied, was 5.1%.
-- The assumed WAL of the portfolio was 6.8 years.
-- The PD and expected WAL were used in the DBRS Diversity Model to generate the hurdle rate for the target rating.
-- The recovery rate was determined by considering the market value declines for Italian commercial and residential real estate properties, the security level and the type of collateral. Recovery rates of 16.3% and 39.0% were used for the secured and unsecured loans, respectively, at the A (high) (sf) rating level.
-- The break-even default rates for the interest rate stresses and default timings were determined using the DBRS Cash Flow Model.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is Rating CLOs Backed by Loans to European SMEs.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 data and information used for this rating include the Arranger, UniCredit Bank AG and the Originators, CR Asti and BiverBanca.

DBRS did 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.

The vintage performance data provided did not match the definition that DBRS bases its analysis on. The historical performance data was based on the “sofferenza” definition of default, which is different from the standard of “180 days past due” definition used by DBRS for Italian transactions. Additional dynamic arrears data was provided by the Originators to determine a conservative average annual default rate. Despite the above, DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

This rating concerns a newly issued financial instrument.

This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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):

-- PD rates used: weighted-average Base Case PD of 5.1%, a 10% and 20% increase on the Base Case PD.
-- Recovery rates used: Base Case weighted-average recovery rate of 31.0% at A (high) (sf) stress level and a 10% and 20% decrease in the Base Case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS concludes a hypothetical increase of the Base Case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Class A Notes at A (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would lead to a confirmation of the Class A Notes at A (high) (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.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Carlos Silva, Senior Vice President
Initial Rating Date: 16 March 2017

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
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:

-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Legal Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda

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.

Ratings

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  • EU = Lead Analyst based in EU
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  • U = UK endorsed
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