DBRS Assigns Ratings to 2018 Popolare Bari RMBS S.r.l.

DBRS Ratings Limited (DBRS) assigned the following ratings to the Class A and Class B Residential Mortgage Backed Floating Rate Notes (together, the Rated Notes) issued by 2018 Popolare Bari RMBS S.r.l. (the Issuer):

-- EUR 684,237,000 Class A Notes (ISIN IT0005335630) at AA (sf)
-- EUR 48,299,000 Class B Notes (ISIN IT0005335648) at A (high) (sf)

The rating assigned to the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in April 2059. The rating assigned to the Class B Notes addresses the ultimate payment of interest and principal on or before the Final Maturity Date. DBRS does not rate the EUR 77,534,000 Class J1 Notes (ISIN IT0005335655) or the EUR 16,911,000 Class J2 Notes (ISIN IT0005335663).

The purchase of the portfolio (the Portfolio) is funded via the issuance of Class A, Class B, Class J1 and Class J2 Notes; the cash reserve is fully funded at EUR 21,976,080 via the issuance of Class J1 and Class J2 Notes. The cash reserve is equal to 3% of the Rated Notes’ outstanding balance with a floor of 1% of their initial balance.

The Class A Notes benefit from 15% credit enhancement (calculated as a percentage of the Portfolio) at closing, and the Class B Notes benefit from 9% credit enhancement. It should be noted that credit enhancement is also available through the cash reserve to the extent available, as released amounts of the reserve will form part of the available funds.

The Portfolio consists of Italian residential mortgage loans originated by Banca Popolare di Bari S.c.p.a. (BPB) and Cassa di Risparmio di Orvieto S.p.A. (CRO), which are also the Servicers of their respective sub-pools. BPB also acts as Master Servicer of the Transaction, while Zenith Services S.p.A. has been appointed as Back-Up Servicer.

As of 30 April 2018, the Portfolio consisted of 11,396 mortgage loans granted to 11,239 borrowers. The total balance of the Portfolio is EUR 803 million. The average loan balance is EUR 70,476. The weighted-average (WA) seasoning of the Portfolio is 5.2 years with a WA residual maturity of 16.9 years. The WA loan-to-value of the Portfolio is 48.2%. The Portfolio is mainly distributed in the Apulia (38.0%), Campania (13.6%) and Lazio (11.8%) regions.

The Portfolio is split between 69% floating- and 31% fixed-rate loans. Of the floating-rate loans, about 4% (of the total pool) include an interest rate cap, normally between 5% and 9%. The majority of floating-rate loans (66% of the floating-rate pool) are indexed to three-month Euribor.

Six swap transactions are in place: four to hedge the basis risk, and two to hedge the fixed-floating interest rate risk. JP Morgan AG acts as swap counterparty. DBRS has given limited credit only to the fixed-floating swap transactions, as the swap documentation is not fully consistent with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Account Bank is BNP Paribas Securities Services, Milan Branch. The DBRS private rating of 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.

The ratings are 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 Portfolio characteristics. The European RMBS Credit Model was used to estimate the expected probability of default (PD), loss given default (LGD) and expected loss of the Portfolio.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language 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.

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-sovereigngovernments.pdf.

The sources of information used for these ratings include historical performance, default, recovery and prepayment data, stratification tables and loan-level data provided by JP Morgan as arranger of the transaction.

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

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 these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

These ratings concern a newly rated financial instrument. These are the first DBRS ratings 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 25.92% and 24.81%, 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 (high) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to A (sf).
-- 25% increase of the LGD, ceteris paribus would not lead to a change in the rating on the Class A Notes.
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).

DBRS concludes the following impact on the Class B Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (high) (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 (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to 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: Antonio Laudani, Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 14 June 2018

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.

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- 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
-- 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.