DBRS Confirms Rating on Class A Notes Issued by Credico Finance 16 S.r.l.

DBRS Ratings Limited (DBRS) confirmed its AA (low) (sf) rating on the Class A Notes issued by Credico Finance 16 S.r.l. (the Issuer).

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of September 2017;
-- Probability of default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the outstanding collateral pool;
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the AA (low) (sf) rating level.

The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Legal Final Maturity Date in December 2056.

Credico Finance 16 S.r.l. is a securitisation of first lien residential mortgage loans, distributed largely in Northern and Central Italy. The portfolio was originated and is currently serviced by fifteen local cooperative but independent banks that belong to the network of ICCREA Banca S.p.A. (ICCREA). ICCREA acts as back-up servicer and has been appointed to replace any of the servicer in an event of disruption.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The portfolio is performing well and within DBRS’s expectations. As of September 2017, loans more than 90 days delinquent accounted for 0.3% of the outstanding collateral portfolio balance. No defaulted loans have been realised so far. DBRS conducted a loan-by-loan analysis on the outstanding pool of receivables and maintained the PD and LGD assumptions on the outstanding collateral portfolio at 11.9% and 11.3%, respectively.

CREDIT ENHANCEMENT
As of September 2017, CE to the Class A Notes was 17.0%, up from 15.0% at closing. CE to the Class A Notes is provided by the overcollateralization of the outstanding collateral portfolio balance. The reserve fund, which is currently at its target level of EUR 20.3 million (4.0% of the outstanding balance of the Class A Notes), is available to pay senior fees, expenses and missed interest on the Class A Notes. In case of disruption of one or more portfolios, mitigants have been set up in the structure to contribute to the Class A Notes principal payment through a portion of the reserve fund.

BNP Paribas Securities Services, Milan Branch is the Account Bank for the transaction. The DBRS private rating on the Account Bank 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 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 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 this rating include servicer, payments and investors reports provided by Accounting Partners S.r.l 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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Ilaria Maschietto.

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”):

-- DBRS expected a Base Case PD and LGD for the portfolio based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and, therefore, have a negative effect on credit ratings.

-- The Base Case PD and LGD of the pool of mortgages for the Issuer are 11.9% and 11.3%, respectively. At the AA (low) (sf) rating level, the corresponding PD is 32.0% and the LGD is 27.9%.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increased by 50%, the rating of the Class A Notes would be expected be downgraded to A (high) (sf), assuming no change in the PD. If the PD increased by 50%, the rating for the Class A Notes would be expected to be downgraded to BBB (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increased by 50%, the rating of the Class A Notes would be expected to be downgraded to BBB (low) (sf).

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

Lead Analyst: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 November 2016

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

-- 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

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