DBRS Assigns Rating to Brera SEC S.r.l.

DBRS Ratings Limited (DBRS) assigned a rating of A (high) (sf) to the EUR 6.025 billion Class A Notes issued by Brera SEC S.r.l. (Issuer).

-- EUR 6,025,000,000 Class A Notes at A (high) (sf)

The rating addresses timely payment of interest and the Issuer’s obligation to repay principal on the Class A Notes. DBRS does not rate the EUR 1,067,309,000 Class B Notes.

The purchase of the initial portfolio was funded through the issuance of the Class A and the Class B Notes, with the cash reserve fully funded at EUR 150,000,000 (2.5% of the Class A Initial Amount) via a subordinated loan granted by Intesa Sanpaolo. The Class A Notes benefit from 15.05% credit enhancement from the Class B Notes. The cash reserve provides liquidity support to cover senior fees and any Class A interest shortfall or principal at the Final Maturity Date, if necessary.

The initial portfolio consists of Italian residential mortgage loans originated by Intesa Sanpaolo S.p.A. (ISP) and the following subsidiaries: Banco di Napoli (BDN), Cassa di Risparmio in Bologna (Carisbo), Cassa di Risparmio del Friuli Venezia Giulia (CR FVG) and Cassa dei Risparmi di Forli’ e della Romagna (CR Romagna), which also act as the servicers and sellers of this transaction. ISP is the Master Servicer while Intesa Sanpaolo Group Services Scpa acts as Special Servicer for the management of “sofferenze” loans.

As of 22 October 2017, the initial portfolio, which had a total balance of EUR 7.09 billion, consisted of 65,935 mortgage loans extended to 65,622 borrowers. The average loan per borrower was EUR 108,078. The weighted-average (WA) seasoning of the initial portfolio was 3.70 years with a WA residual maturity of 21.59 years. The WA loan-to-value of the initial portfolio was 68.0%.

The pool is geographically well distributed across Italy, with 73.0% of the portfolio being located in the North (the wealthiest area), 10.9% in the Centre and 16.1% in the South of Italy. The top three regions are Lombardy (24.8%), Emilia Romagna (20.8%) and Friuli Venezia Giulia (12.8%).

The portfolio consists mostly of fixed-rate-for-life loans, which represent 63.0% of the pool in terms of outstanding balance. Floating-rate loans represent 26.0% of the outstanding balance. The remaining 4.3% are floating-rate loans with caps. Approximately 6.8% of the loans in the portfolio have the option to switch from fixed-interest-rates to floating-rates and vice versa at certain dates throughout the life of the loan. No swaps are in place to hedge the basis and fixed- to floating-interest-rate risk, however, the 5% cap on the coupon of Class A Notes partially mitigates the risk,
The Transaction Account Bank provider is ISP. DBRS rates ISP Senior Long-Term debt at BBB (high), and ISP Critical Obligations at “A”. These ratings comply with the threshold for the Account Bank, given the rating assigned to the Class A Notes.

The rating is based upon review by DBRS of the following analytical considerations:
-- The transaction capital structure, form and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the static mortgage loan portfolio and the ability of the servicers to perform collection activities. DBRS used the European RMBS Credit Tool to estimate probability of default (PD), loss given default (LGD) and expected loss (EL) outputs on the mortgage loan portfolio.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language for the Account Bank in the transaction documents.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the notes.
-- Incorporation of a sovereign-related stress component in the stress scenarios as a result of the BBB (high) rating assigned by DBRS to the Republic of Italy.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and consistency with 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 Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. An asset and a cash flow analysis were both conducted.

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 information used for this rating include historical performance, default, recovery and prepayment data and loan-level data provided ISP.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

DBRS was supplied with third-party assessments.

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 rating concerns a newly rated financial instrument. This is the first DBRS rating on this financial instrument.

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):

In respect of the Class A Notes, the PD and LGD at the AA (sf) stress scenario of 44.38% and 46.89%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS concludes the following impact on the Class A Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to 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: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 11 December 2017

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY
United Kingdom
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.

-- Derivative Criteria for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations
-- 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.