DBRS Takes Rating Actions on Siena PMI 2016 S.r.l.

DBRS Ratings Limited (DBRS) took rating actions on the following Notes issued by Siena PMI 2016 S.r.l. (the Issuer):

-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class B Notes upgraded to AA (high) (sf) from AA (sf)
-- Class C Notes upgraded to BB (high) (sf) from B (low) (sf)

The ratings on the Class A1 and Class A2 Notes address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date (November 2052), while the ratings on the Class B and Class C Notes address the ultimate payment of interest and ultimate payment of principal on or before the Final Maturity Date.

The rating actions on the Class A1, Class A2, Class B and Class C Notes follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of level of delinquencies and defaults, as of August 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 A1, Class A2, Class B and Class C Notes to cover expected losses assumed in line with the AAA (sf), AA (high) (sf) and BB (high) (sf) rating levels, respectively.

The Issuer is a cash flow securitisation collateralised by a portfolio of performing mortgage and non-mortgage loans to Italian small- and medium-sized enterprises (SME), entrepreneurs, artisans and family businesses. The loans were mainly granted by Banca Monte dei Paschi di Siena S.p.A. (BMPS or the Originator) but also by Banca Antonveneta, Banca Agricola Mantovana and Banca Toscana before its merger with BMPS.

The transaction has four more months of a revolving period during which time the Originator may sell new receivables (Subsequent Portfolios) to the Issuer subject to certain conditions and limitations. The revolving period can end prematurely if certain events occur, including the downgrade of BMPS’s senior long-term debt below CCC, the cumulative gross default rate exceeding certain thresholds, the inability to fully replenish the cash reserve (CR) and the insolvency of the Originator. The purchase of new receivables are funded through principal collections only (excluding recoveries). To date, no subsequent portfolios have been sold to the Issuer after closing, which has resulted in the fast amortisation of the Class A1 Notes before the end of the revolving period.

PORTFOLIO PERFORMANCE
As of 7 August 2017 cut-off date, the overall portfolio consisted of 16,652 loans with an aggregate principal balance of EUR 1.3 million.

The portfolio is performing within DBRS’s expectations. The percentage of outstanding balance of loans in arrears for more than 90 days stands at 0.9% terms of the outstanding portfolio. The cumulative default ratio was at 0.07% in terms of the initial portfolio amount.

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 60.4% and 16.4%, respectively, at the AAA (sf) rating level, 55.8% and 19%, respectively, at the AA (high) (sf) rating level, 32.5% and 27% respectively, at the BB (high) (sf) rating level.

CREDIT ENHANCEMENT
As of August 2017, the CE to the Class A1, A2, B and C Notes was 100.8%, 69.3%, 57.5% and 31.2%, respectively up from 72.4%, 51.2%, 42.6% and 23.4% at closing. The CE of the Class A1, A2, B and C Notes considers the subordinated notes and the CR. The CR is available to cover shortfalls of senior fees and interests on the Class A1, Class A2 and Class B Notes as well as principal shortfalls at the Final Maturity Date.

BNP Paribas Securities Services SCA/Milan acts as the 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 A1 and A2 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 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” at:
http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of data and information used for these ratings include reports provided by Securitasation Services S.P.A. and BMPS, 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 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 18 November 2016 when DBRS finalised its ratings of AAA (sf), AA (high) (sf), A (high) (sf) and B (low) (sf) on the Class A1, Class A2, Class B and Class C Notes, respectively.

The lead analyst responsibilities for this transaction have been transferred to Francesco Amato.

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 4.6%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: base case recovery rates of 16.4% at the AAA (sf) stress level for the Class A1 and A2 Notes, a base case recovery rates of 19% at the AA (high) (sf) stress level for the Class B Notes, and a base case recovery rates of 26.4% at the BB (high) (sf) stress level for the Class C Notes 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 A1 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 A1 Notes at AAA (sf).

Regarding the Class A2 Notes 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 C 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 A2 Notes at AAA (sf).

Regarding the Class B Notes 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 B Notes at AA (high) (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 A2 Notes at AA (high) (sf).

Regarding the Class C Notes 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 C Notes at BB (high) (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 C Notes at BB (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 and US regulations only.

Lead Analyst: Francesco Amato, Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 2 November 2016

DBRS Ratings Limited
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United Kingdom
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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
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- 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.