DBRS Confirms Rating on Class A Notes of Cassa Centrale Finance 3 S.r.l.

DBRS Ratings Limited (DBRS) confirmed its rating on the Class A Notes issued by Cassa Centrale Finance 3 S.r.l. (the Issuer) at AA (sf).

The confirmation follows an annual review of the transaction and is based on the following analytical considerations, as described more fully below:

-- Portfolio performance in terms of delinquencies and defaults, as of the October 2017 payment date.
-- Loan probability of default rate (PD), loss given default rate (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AA (sf) rating level.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Maturity Date in October 2049.

The Issuer is a securitisation of first-ranking Italian residential mortgages (77.2%) and agrarian loans (22.8%) originated and serviced by 14 Cooperative Italian banks: Mediocredito Trentino A.A., BCC Cherasco, Cassa Rurale di Aldeno e Cadine, Cassa Rurale Lavis Valle di Cembra, Cassa Rurale di Pergine, BCC Centromarca, Cassa Rurale Alto Garda, Cassa Rurale Pinetana Fornace e Seregnano, Cassa Rurale Adamello–Brenta, Cassa Rurale di Rovereto, Banca Alto Vicentino Credito Cooperativo Schio, Cassa Rurale Centrofiemme Cavalese, Banca di Cavola e Sassuolo and Cassa Rurale di Folgaria. The transaction closed in December 2009. Since the closing date, six of the original originators and servicers have been acquired. Please refer to DBRS’s latest Performance Analytics Report for an updated list of originators and servicers at https://www.dbrs.com/issuers/17883/cassa-centrale-finance-3-srl.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The performance of the collateral pool is stable and within DBRS’s expectations. As of 30 September 2017, the loans more than 30 days delinquent as a percentage of the outstanding collateral pool balance were at 3.2%. The cumulative default ratio remains at 0.0%. The portfolio pool factor is currently at 33.4%. To reflect the current portfolio composition, DBRS has updated its base case PD and LGD assumptions to 10.5% and 0.3%, respectively.
 
CREDIT ENHANCEMENT AND LIQUIDITY FACILITY
The CE to the Class A Notes has increased as the transaction is deleveraging. As of the October 2017 payment date, the CE to the Class A Notes increased to 40.0% from 33.1% 12 months prior. The source of CE to the Class A Notes consists of the subordination of the junior notes. The transaction also benefits from a Liquidity Facility available to cover shortfalls in senior expenses as well as interest shortfalls on the Class A Notes. The Facility’s commitment amount of EUR 25.7 million is the total of each Originator’s Maximum Commitment Amount to the facility.

Deutsche Bank S.p.A. (DB SpA) acts as the Transaction Bank for the transaction. On the basis of the DBRS private rating of DB SpA and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to the Transaction Bank to be consistent with the ratings assigned to the notes.

JP Morgan Securities plc (JP Morgan) and Mediocredito Trentino A.A. (Mediocredito) act as the Swap Counterparties in the transaction. DBRS does not rate Mediocredito. As a result, DBRS did not give any credit to the hedging arrangement in the cash flow analysis. JP Morgan’s DBRS private rating complies with the first rating threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given 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: “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 documents have remained unchanged since the most recent rating action.

Other methodologies referenced in the 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 these rating actions include the investor reports provided by Deutsche Bank AG and the loan-by-loan data provided by 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 took place on 13 January 2017, when DBRS downgraded the Class A Notes to AA (sf) from AA (high) (sf) following the downgrade of the DBRS private rating of Deutsche Bank S.p.A.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available at 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):

-- The base case PD and LGD assumptions for the remaining collateral pool are 10.5% and 0.3%, respectively. At the AA (sf) rating level, the corresponding PD and LGD are 31.2% and 5.6%, respectively.

-- 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 increases by 50%, the rating on the Class A Notes would be expected to be at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to be at AA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Kevin Ma, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 5 May 2011

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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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions

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.