DBRS Assigns Rating to Valconca SPV S.r.l. (RMBS)

DBRS Ratings Limited (DBRS) assigned the following rating to the Class A Residential Mortgage-Backed Floating-Rate Notes (Class A Notes) issued by Valconca SPV S.r.l. (the Issuer):

-- EUR 99,000,000 Class A Notes at A (sf)

The rating addresses the timely payment of interest and ultimate payment of principal on the Class A Notes on or before the final maturity date in October 2060. DBRS does not rate the EUR 19,581,000 Class J Residential Mortgage-Backed Variable Return Notes (Class J Notes) included in this transaction.

Valconca SPV S.r.l. (RMBS) is a securitisation of first-ranking Italian residential mortgage loans originated by Banca Popolare Valconca S.C.p.A. (Banca Valconca) to borrowers in Italy. Banca Valconca is a cooperative bank that provides various banking products and services to businesses and private customers in Italy. This is the first securitisation for Banca Valconca, which will also service the mortgage portfolio. The back-up servicer facilitator for this transaction is Securitisation Services S.p.A.

The purchase of the portfolio is funded through the issuance of the Class A Notes and the Class J Notes. The cash reserve stands at EUR 1,980,000 and is fully funded through the issuance of the Class J Notes. The Class A Notes benefit from 16.8% credit enhancement (as a percentage of the original portfolio) at closing and consists of the subordination of Class J Notes.

As of 31 May 2018, the portfolio consisted of 1,189 mortgage loans amounting to approximately to EUR 117 million. The weighted-average (WA) seasoning of the portfolio was 5.8 years with a WA residual maturity of 16.1 years. The WA loan-to-value of the portfolio was 54.5%. The portfolio is almost entirely located within the Rimini, Pesaro and Urbino provinces of Italy.

Approximately 1.2% of the mortgage loans pay a fixed rate of interest and 2.2% pay interest linked to three-month Euribor. However, the majority of the portfolio (96.6% of the loans by total balance) pay interest linked to six-month Euribor. In comparison, the interest payable on the notes is linked to three-month Euribor. No swap arrangements are in place to hedge the basis and fixed-to-floating interest rate risk. The cash reserve is available to meet payments due on the senior fees and interest on the Class A Notes. In addition, the interest payable on the Class A Notes is capped at 3.0%.

The Account Bank provider is BNP Paribas Securities Services, Milan Branch. The DBRS private rating of the Account Bank is consistent 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 rating is based upon review by DBRS of the following analytical considerations:
--Transaction capital structure, and form and sufficiency of available credit enhancement.
--Credit enhancement levels are sufficient to support DBRS-projected expected cumulative losses under various stressed scenarios.
--The ability of the transaction to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions of the notes. This rating addresses the timely payment of interest and ultimate payment of principal by the final legal maturity date falling in October 2060.
--DBRS’s qualitative assessment of Banca Valconca’s capabilities with regards to originations, underwriting and servicing.
--The transaction parties’ financial strength in order to fulfil their respective roles.
--The expected credit quality of the collateral, given the criteria specified in the transaction documents.
--The sovereign rating of the Republic of Italy at BBB (high) with a Stable trend as of the date of this report.
--The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of the appropriate legal opinions that address the true sale of the assets to the Issuer and non-consolidation of the Issuer with the Seller.

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-sovereign-governments.pdf.

The sources of information used for this rating include default historical performance data and loan-level data provided by FISG S.r.l.

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

DBRS was not supplied with one or more 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 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 probability of default (PD) and loss given default (LGD) at the A (sf) stress scenario of 31.9% and 49.3%, respectively.

DBRS concludes the following impact on the Class A Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (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 Di Marco, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 June 2018

DBRS Ratings Limited
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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
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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.