DBRS Upgrades Ratings on Notes Issued by BPL Mortgages S.r.l., Series VII

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the notes issued by BPL Mortgages S.r.l. (the Issuer), in the context of the seventh securitisation transaction (BPL VII) originated by the Issuer, as follows:
-- Class A – 2014 upgraded to AA (high) (sf) from A (high) (sf)
-- Series A2 – 2016 upgraded to AA (high) (sf) from A (high) (sf)
-- Class B – 2014 upgraded to A (high) (sf) from A (low) (sf)
-- Series B2 – 2016 upgraded to A (high) (sf) from A (low) (sf)

The above-mentioned rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of May 2017;
-- Updated portfolio default rate, recovery rate and expected loss assumptions for the remaining collateral pool; and
-- The current available credit enhancement (CE) to Class A – 2014 and Series A2 – 2016 (together, the Class A Notes) to cover expected losses assumed in line with the AA (high) (sf) rating level and to Class B – 2014 and Series B2 – 2016 (together, the Class B Notes) to cover expected losses in line with the A (high) (sf) rating level.

The ratings on the rated notes address the timely payment of interest and ultimate payment of principal payable on or before the Maturity Date in November 2054.

BPL VII is a securitisation collateralised by a portfolio of secured and unsecured loans to Italian small- and medium-sized enterprises (SMEs), entrepreneurs, artisans and producer families that were granted by Banco Popolare – Società Cooperativa (BP) or one of its regional banks. In January 2017, BP and Banca Popolare di Milano S.C.a.r.l. merged into Banco BPM SpA.

The transaction closed in June 2014 and in February 2016, following a transaction restructuring, BPL VII acquired a Subsequent Portfolio from BP and sold all loans in arrears by 57 days or more comprised in the pool as of 25 January 2016. The Subsequent Portfolio included both newly originated performing loans and loans from the previous SME CLO of the Issuer, BPL Mortgages S.r.l. – Series VI, which was unwound on 19 February 2016. The acquisition of the Subsequent Portfolio was financed through the issuance of new classes of notes: Series A2–2016, Series B2–2016 and Series C2–2016.

PORTFOLIO PERFORMANCE
As of the May 2017 payment date, the overall portfolio consisted of 18,172 loans with an aggregate principal balance of EUR 2,226.2 million (which excludes EUR 227.0 million of loans classified as defaulted).

Loans in arrears between 31 days and 60 days and loans in arrears between 61 days and 90 days represented 0.3% and 0.7% of the principal outstanding balance of the portfolio, respectively, while delinquencies greater than 90 days were 0.7%. The cumulative gross default ratio was 4.3%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its portfolio default and recovery assumptions on the outstanding portfolio to 66.1% and 49.8%, respectively, at the AA (high) (sf) rating level, and to 59.4% and 55.1%, respectively, at the A (high) (sf) rating level.

CREDIT ENHANCEMENT
As of May 2017, CE to the Class A Notes was 55.7% and the CE to the Class B Notes was 43.8%, up from 42.2% and 33.7%, respectively, in May 2016. The CE of the rated notes considers the balance of the performing portfolio (excluding delinquencies greater than 90 days and defaulted loans) and the Cash Reserve. Up to the May 2017 payment date, the Cash Reserve has always been at its target level of EUR 166.4 million.

BNP Paribas Securities Services, London branch acts as Transaction Bank and BNP Paribas Securities Services, Milan branch is the Paying Agent for the transaction. DBRS’s private ratings on both institutions comply with the Minimum Institution Rating, given the ratings assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology (the Legal Criteria).

Banco BPM SpA acts as Cash Account Bank and holds the Cash Reserve. As the Cash Account Bank reference rating of BBB – one notch below the DBRS Long-Term Critical Obligations Rating of Banco BPM SpA at BBB (high) – is below the Minimum Institution Rating given the ratings assigned to the Class A Notes as described in the Legal Criteria, DBRS did not give credit to the Cash Reserve in its analysis.

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 surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal 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 include servicer and investor reports provided by Banco BPM SpA and loan-by-loan data from the European DataWarehouse 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 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 this transaction took place on 1 August 2016, when DBRS upgraded the ratings on the Class A Notes to A (high) (sf) from A (sf), and upgraded the ratings on the Class B Notes to A (low) (sf) from BBB (high) (sf).

The lead responsibilities for this transaction have been transferred to Joana Seara da Costa.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Probability of Default (PD) rates used: Base Case PD of 6.0%, a 10% and 20% increase on the Base Case PD.
-- Recovery Rates used: Base Case recovery rate of 49.8% and 55.1% at AA (high) (sf) and A (high) (sf) stress levels, respectively, 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 that a hypothetical increase of the Base Case PD by 20%, ceteris paribus, would lead to a confirmation of the Class A Notes ratings at AA (high) (sf) and a confirmation of the Class B Notes ratings at A (high) (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf) and to a confirmation of the Class B Notes ratings at A (high) (sf). A scenario combining both a hypothetical increase in the PD by 20% and a hypothetical decrease in the recovery rate by 20% would lead to a downgrade of the Class A Notes to A (high) (sf) and to a downgrade of the Class B Notes to A (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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 June 2014

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

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

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