DBRS Assigns Ratings to Leone Arancio RMBS S.r.l.
RMBSDBRS Ratings Limited (DBRS) assigned the following ratings to the Class A1 Residential Mortgage-Backed Floating-Rate Notes (Class A1 Notes) and Class A2 Residential Mortgage-Backed Fixed-Rate Notes (Class A2 Notes) (together, the Class A Notes) issued by Leone Arancio RMBS S.r.l. (Issuer).
-- EUR 4,949,490,000 Class A1 Notes at AA (high) (sf)
-- EUR 2,665,110,000 Class A2 Notes at AA (high) (sf)
The ratings address the timely payment of interest and ultimate payment of principal on the Class A Notes. DBRS does not rate the EUR 1,844,530,000 Class J Residential Mortgage-Backed Notes (Class J Notes) issued in this transaction.
At closing, the Notes were issued on a partly paid basis. During the three-year revolving period, principal collections along with further proceeds from the Class A Notes and Class J Notes can be used to purchase additional portfolios, which will allow the Notes to increase their total nominal amounts subject to portfolio limits and eligibility criteria. The subscribed amounts for the Class A1 Notes, Class A2 Notes and Class J Notes are EUR 4,164,615,000, EUR 2,242,485,000 and EUR 1,552,030,000, respectively.
The purchase of the initial portfolio was funded through the issuance of the Notes at their initial payment amounts. The transaction benefits from liquidity support for the Class A Notes provided by the cash advance facility sized and floored at 1.5% and 0.75% of the total nominal amounts of Class A Notes.
The initial portfolio consists of Italian residential mortgage loans originated by ING Bank N.V., Milan Branch (ING Italy), which also acts as the servicer and liquidity facility provider in the transaction.
At closing, the initial portfolio consists of 77,193 mortgage loans extended to 77,193 borrowers. The total balance of the initial portfolio amounts approximately to EUR 8.0 billion. The average loan size is EUR 103,106. The weighted-average (WA) seasoning of the initial portfolio is 5.1 years with a WA residual maturity of 19.9 years. The WA loan-to-value of the initial portfolio is 52.64%. The transaction documents specify criteria which must be complied with in order to mitigate a potential deterioration in the credit quality of the mortgage portfolio during the revolving period
Approximately 65.5% of the initial portfolio by loan balance are floating-rate loans, 12.3% are fixed-rate-for-life loans, 19.6% are optional loans and the remaining 2.6% are fixed-rate loans with a mandatory switch to floating. No swaps are in place to hedge the basis and fixed-to-floating interest rate risk. In order to mitigate the risk, the Class A1 Notes have a cap on their coupon at 3.00% and both the cash advance facility and available principal funds may be used to meet any shortfalls on the senior fees and Class A Notes’ interest.
ING Bank N.V. (ING) acts as the Account Bank for the transaction. ING’s reference rating of AA is one notch below DBRS’s Long-Term Critical Obligations Rating (COR) of AA (high) and structural mitigants comply with the framework described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
The ratings are based upon DBRS’s review of the following analytical considerations:
-- The transaction capital structure, form and sufficiency of available credit enhancement and liquidity provisions.
-- The dynamic portfolio characteristic, assessed by simulating a stressed portfolio based on the eligibility criteria and the current portfolio characteristics. The European RMBS Credit Model was used to estimate the expected probability of default (PD), loss given default (LGD) and expected losses of the worst-case 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.
-- The 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 consistency of the transaction with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
Notes:
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings 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. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.
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 source of information used for this rating include default historical performance data and loan-level data provided by ING Bank N.V.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
DBRS was 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 PD and LGD at the AA (high) (sf) stress scenario of 33.96% and 42.86%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
DBRS concludes the following impact on the Class A1 and A2 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 BBB (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (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 A (low) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (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: Gareth Levington, Managing Director
Initial Rating Date: 6 July 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.