DBRS Upgrades Rating on Class A Notes Issued by Carismi Finance S.r.l.

DBRS Ratings Limited (DBRS) has today upgraded the rating on the Class A Notes issued by Carismi Finance S.r.l. (the Issuer) to AAA (sf) from AA (sf).

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

The upgrade follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of level of delinquencies and defaults, as of the latest payment date, February 2017.
-- Updated portfolio default rate, recovery rate and expected loss assumptions for the remaining collateral pool; and
-- The current available credit enhancement (CE) to the Class A Notes to cover expected losses assumed in line with the AAA (sf) rating level.
The transaction is a cash flow securitisation collateralised by a portfolio of bank loans granted by Cassa di Risparmio di San Miniato (the Originator) to Italian small and medium-sized enterprises (SMEs), entrepreneurs, artisans and self-employed individuals.

PORTFOLIO PERFORMANCE
As of the latest payment date, the overall portfolio consisted of 2.467 loans with an aggregate principal balance of EUR 303.1 million.

The portfolio is performing within DBRS’s expectations. The 90+ delinquency ratio was at 0.53% and the cumulative default ratio was at 2.28%, as of February 2017.

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 52.6% and 40.1%, respectively, at the AAA (sf) rating level. The portfolio lifetime default rate has deteriorated since the last rating action on 1 August 2016, reflecting DBRS’s downgrade of the Republic of Italy’s Long-Term Foreign Currency rating to BBB (high) with a Stable trend on 13 January 2017 (see DBRS press release entitled, “DBRS Downgrades Italy to BBB (high), Stable Trend”).

CREDIT ENHANCEMENT
As of February 2017, CE to the Class A Notes was 56.0%, up from 37.8% in February 2016. The CE of the Class A Notes considers the balance of the performing portfolio (excluding delinquencies greater than 90 days and defaulted loans) and the Cash Reserve (CR). The CR consists of two parts: a Liquidity Reserve Amount which is available to cover any shortfalls in the senior fees and interest on the Class A Notes, and the Target Cash Reserve Amount, which is also available to cover for defaults. The CR is currently at its initial level of EUR 13.3 million. The increase in the CE prompted today’s upgrade rating action.

BNP Paribas Securities Services SCA/Milan acts as Transaction Account Bank for the transaction. DBRS’s private rating on BNP Paribas Securities Services SCA/Milan complies with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs.”

DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the surveillance section of 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 include reports provided by Cassa di Risparmio di San Miniato S.p.A., and loan-level 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 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 this transaction took place on 1 August 2016, when DBRS upgraded the Class A Notes to AA (sf) from A (high) (sf).

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):

-- Probability of Default (PD) Rates Used: base case PD of 4.2%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: base case recovery rates of 40.1% at the AAA (sf) stress level for the Class A Notes, a 10% and 20% decrease in the base case recovery rates. 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% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Class A Notes at AAA (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Class A Notes at AAA (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: Alfonso Candelas, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 8 July 2014

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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
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations
-- Cash Flow Assumptions for Corporate Credit Securitisations

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.