DBRS Confirms Rating on Valsabbina SPV 1 S.r.l. (SME)

DBRS Ratings Limited (DBRS) confirmed its A (low) (sf) rating on the Class A Notes issued by Valsabbina SPV 1 S.r.l. (the Issuer, or Valsabbina SME):

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 October 2017;
-- Portfolio default rate (PD), and recovery rate assumptions for the outstanding collateral pool;
-- No revolving termination events have occurred;
-- Current available credit enhancement (CE) to the Notes to cover the expected losses assumed with the recommended 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 Final Maturity Date in October 2052.

Valsabbina SME is a securitisation transaction collateralised by a portfolio of mortgage and non-mortgage loans to Italian small- and medium-sized enterprises, entrepreneurs and self-employed individuals granted by Banca Valsabbina S.p.A. (Banca Valsabbina) and Credito Veronese S.p.A. (merged into Banca Valsabbina in 2012). The transaction includes a 23-month revolving period, during which Banca Valsabbina may sell new receivables to the Issuer subject to certain conditions and limitations. To date, all of them have been met.

PORTFOLIO PERFORMANCE
The portfolio is performing well and within DBRS’s expectations. As of October 2017, loans more than 90 days delinquent accounted for 0.5% of the outstanding collateral portfolio balance. Cumulative defaulted loans as a percentage of the aggregate original portfolio balance were still low at 0.03%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding pool of receivables and maintained the base case PD assumptions on the worst-case portfolio at 6.2%, based on a PD of 7.8% for mortgage loans and 4.7% for non-mortgage loans, respectively. In addition, DBRS maintained the recovery rate base case on the worst-case portfolio at 57.6% and 16.3% for the secured and unsecured loans, respectively, at the A (low) (sf) rating level.

CREDIT ENHANCEMENT
CE to the Class A Notes is provided by the overcollateralisation of the outstanding collateral portfolio balance. As of October 2017, CE to the Class A Notes was 39.4%, in line with the CE at closing. The reserve fund, which is currently at its target level of EUR 7.2 million (1.8% of the outstanding balance of the Class A Notes), is available to pay senior fees, expenses and missed interest on the Class A Notes.

BNP Paribas Securities Services, Milan Branch is the Account Bank for the transaction. On the basis of the DBRS private rating of the Account Bank and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to the Account Bank to be consistent with the rating assigned to the Class A Notes.

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 principal methodology.

An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf

The sources of data and information used for this rating include servicer reports provided by Banca Valsabbina, payments and investors reports provided by Securitisation Services S.p.A. and loan-by-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.

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”):

-- Probability of Default Rates Used: Base Case PD of 6.2%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base Case Recovery Rate of 32.0% at the A (low) (sf) rating level, 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% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would each lead to a downgrade of the transaction to BBB (sf) or BBB (high) (sf), respectively. A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% would lead to a downgrade of the Class A Notes to BBB (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: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 1 December 2016

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

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