DBRS Takes Rating Actions on Five Berica Italian RMBS Transactions

DBRS Ratings Limited (DBRS) has today taken rating actions on five Berica Italian residential mortgage-backed securities (RMBS) transactions as follow:

Berica 10 Residential MBS S.r.l. (Berica 10):
-- Class A1 Notes confirmed at AAA (sf)

Berica ABS S.r.l. (Berica ABS):
-- Class A1 confirmed at AAA (sf)
-- Class A2 confirmed at AAA (sf)

Berica ABS 2 S.r.l. (Berica 2):
-- Class A2 Notes confirmed at AAA (sf)

Berica ABS 3 S.r.l. (Berica 3):
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from A (high) (sf)

Berica ABS 4 S.r.l. (Berica 4):
-- Class A Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class B Notes upgraded to A (high) (sf) from A (sf)
-- Class C Notes upgraded to A (low) (sf) from BBB (sf)

The ratings of the following notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date: Berica 10 Class A1 Notes, Berica ABS Class A1 and Class A2, Berica 2 Class A2 Notes, Berica 3 Class A Notes and Berica 4 Class A Notes.

The ratings of the following notes address the ultimate payment of interest and principal on or before the legal final maturity date: Berica 3 Class B Notes and Berica 4 Class B and C Notes.

Today’s rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies, defaults and losses.
-- Portfolio default (PD) rate, loss given default (LGD) and expected loss assumptions for the remaining collateral pools.
-- The credit enhancement (CE) available to the rated notes to cover the expected losses at their respective ratings.

All five transactions are securitisations of Italian first-lien mortgage loans originated and serviced by Banca Popolare di Vicenza SpA (BPVi, currently rated B (high), Under Review with Negative Implications by DBRS) and Banca Nuova S.p.A. BPVi also acts as the Master Servicer in the transactions.

PORTFOLIO PERFORMANCE
The portfolios of all five transactions are performing within DBRS’s expectations, despite the increase in the loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance, excluding defaulted loans (90+ ratio) and the increase in the cumulative default as a percentage of the collateral pool balance at the transaction’s closing (cumulative default ratio). For Berica 10, the 90+ ratio increased to 1.1% as of 31 January 2017 from 0.8% 12 months prior and the cumulative default ratio increased to 1.7% from 1.3%. For Berica ABS, the 90+ ratio increased to 2.3% as of 28 February 2017 from 2.1% and the cumulative default ratio increased to 4.1% from 3.2%. For Berica 2, the 90+ ratio increased to 1.7% as of 31 January 2017 from 1.4% and the cumulative default ratio increased to 2.4% from 1.6%. For Berica 3, the 90+ ratio decreased slightly to 2.4% as of 28 February 2017 from 2.5% and the cumulative default ratio increased to 1.8% from 0.8%. For Berica 4, the 90+ ratio increased to 2.2% as of 28 February 2017 from 1.7% and the cumulative default ratio increased to 1.0% from 0.0%.

DBRS has maintained the PD and LGD assumptions on the remaining collateral pools for all five transactions. At the base case B (sf) level, PD and LGD are 6.3% and 3.1%, respectively, for Berica 10; 7.8% and 9.8% for Berica ABS; 4.4% and 4.1% for Berica 2; 7.3% and 8.3% for Berica 3; and 12.3% and 12.5% for Berica 4.

CREDIT ENHANCEMENT
The CEs available to all rated notes have continued to increase as the transactions continue to deleverage. The sources of CE are the subordinated notes and the overcollateralisation. The transactions’ Priority of Payments distribute any remaining cash after the allocation of fee payments and the interests due on the notes as principal to the most senior notes outstanding. When the remaining cash is more than the amortisation on the collateral pools (the difference is the excess spread amount), the overcollateralisation builds up. The overcollateralisation has increased to EUR 39.0 million for Berica 10, to EUR 64.5 million for Berica ABS, to EUR 39.5 million for Berica 2, to EUR 26.4 million for Berica 3 and to EUR 20.3 million for Berica 4.

The CE available to each rated notes was 44.4% for Berica 10 Class A1 Notes as of the February 2017 payment date; 68.4% and 53.4% for Berica ABS Class A1 and A2, respectively, as of the December 2016 payment date; 44.5% for Berica 2 Class A2 Notes as of the February 2017 payment date; 37.3% and 22.42% for Berica 3 Class A and B Notes, respectively, as of the December 2016 payment date; and 32.4%, 22.1%, and 15.6% for Berica 4 Class A, B, and C Notes, respectively, as of the December 2016 payment date. The increase in the CE prompted today’s confirmation and upgrade rating actions.

As the ratings on Berica 3 Class B Notes and Berica 4 Class B and C Notes address the ultimate payment of interest and principal on or before the legal final maturity date, DBRS considered additional factors for the rating decisions. These include but are not limited to the portfolio performance, the Notes’ seniority in the structure, and the likelihood and the timing of any interest deferrals and their subsequent repayments. After incorporating these factors into the analysis, the rating assigned to Berica 4 Class B Notes materially deviates from the higher rating implied by the model.

BPVi was placed under review with negative implications on 24 March 2017. BPVi acts as Servicer, Collection Account Bank and Cash Manager in all five transactions. In this review, DBRS applied additional BPVi default scenario stresses in the cash flow analysis. DBRS concluded that the liquidity available in the transactions and the backup servicer facilitator arrangements in all five transactions are sufficient to mitigate the cash commingling and the payment disruption risks.

Deutsche Bank AG, London Brach (DB London) and Barclays Bank PLC, Milan Branch (Barclays Milan) act as the Account Banks for Berica 10, Berica ABS, Berica 2 and Berica 3. DB London’s reference rating, being one notch below its private DBRS Long-Term Critical Obligations Rating, and Barclays Milan’s private DBRS Issuer and Senior Debt ratings, along with an “A” replacement rating trigger, meet the Minimum Institution Rating criteria given the AAA (sf) rating assigned to the senior notes in each transaction, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology. Similarly, Elavon Financial Services DAC, U.K. Branch (Elavon UK) is the Account Bank for Berica 4. Elavon UK has a private DBRS Issuer and Senior Debt rating, along with an “A” replacement rating trigger, that meets the Minimum Institution Rating criteria given the AAA (sf) rating assigned to the Class A Notes.

J.P. Morgan Securities plc (JPM Securities) is the swap counterparty with JPMorgan Chase Bank, N.A. (rated AA/R-1 (high) by DBRS) as the swap guarantor to all five transactions. JPM Securities’ DBRS private rating meets the rating requirement given the rating assigned to the senior notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “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.

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 for Berica 10, Berica ABS, Berica 2 and Berica 3 include the investor report from Deutsche Bank AG, London Branch and the loan-by-loan data from European Data Warehouse GmbH. The sources of data and information used for this rating for Berica 4 include the investor report from U.S. Bank Global Trust Services and the loan-by-loan data from European Data Warehouse GmbH.

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

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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.

The last rating action on Berica 10 took place on 6 April 2016, when DBRS confirmed the AAA (sf) rating on the Class A1 Notes. The last rating action on Berica ABS took place on 6 April 2016, when DBRS confirmed the AAA (sf) rating on Class A1 and A2. The last rating action on Berica 2 took place on 20 March 2017, when DBRS discontinued the rating on the Class A1 Notes following the full redemption. The last rating action on Berica 3 took place on 12 August 2016, when DBRS confirmed the AAA (sf) rating on the Class A Notes and upgraded the rating on the Class B Notes to A (high) (sf). The last rating action on Berica 4 took place on 8 July 2016, when DBRS confirmed the AA (high) (sf), A (sf) and BBB (sf) ratings on the Class A, B and C Notes, respectively.

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):

-- For Berica 10, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 28.43% and 26.27%, respectively.

-- For Berica ABS, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 31.01% and 34.63%, respectively.

-- For Berica 2, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 27.35% and 24.48%, respectively.

-- For Berica 3, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 29.92% and 33.01%, respectively. At the AA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 24.26% and 28.93%, respectively.

-- For Berica 4, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 40.74% and 37.72%, respectively. At the A (high) (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 31.05% and 29.76%, respectively. At the A (low) (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 28.60% and 26.03%, respectively.

-- The Risk Sensitivity overview below illustrates the rating 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 Berica 10 Class A1 Notes would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A1 Notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A1 Notes would be expected to be at AAA (sf).

Berica 10:
Class A1 Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Berica ABS:
Class A1 risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class A2 risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Berica 2
Class A2 Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Berica 3:
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B 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 (low) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Berica 4:
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B 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)

Class C Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (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.

For Berica 10
Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 5 December 2011

For Berica ABS
Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 20 February 2012

For Berica 2
Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 17 December 2012

For Berica 3
Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 16 June 2014

For Berica 4
Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 10 July 2015

DBRS Ratings Limited
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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.

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