DBRS Upgrades Rating on Class A Notes Issued by Abruzzo SME 2015 S.r.l.

DBRS Ratings Limited (DBRS) upgraded its rating on the Class A Notes issued by Abruzzo SME 2015 S.r.l. (Abruzzo or the Issuer) to AAA (sf) from AA (sf).

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.

The rating action follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies and defaults as of the May 2018 payment date.
-- Probability of default (PD), recovery rate and expected loss assumptions for the remaining collateral pool.
-- The credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian small and medium-sized enterprises, entrepreneurs, artisans and self-employed individuals. The portfolio of loans was granted and is currently serviced by two banks, Banca Tercas S.p.A. and Banca Caripe S.p.A.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS’s expectations. As of May 2018, the 90+ delinquency ratio was at 2.3% and the cumulative defaults were at 4.3%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its portfolio default and recovery assumptions. The base case PD was maintained at 7.8%.

CREDIT ENHANCEMENT
The CE available to the Class A Notes continued to increase as the transaction continued to deleverage. As of the May 2018 payment date, the CE available to the Class A Notes was 83.6%. The increase in the CE prompted the upgrade of the rating.

BNP Paribas Securities Services S.C.A., Milan holds the Transaction Account for the transaction. The DBRS private rating of BNP Paribas Securities Services S.C.A., Milan 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating CLOs Backed by Loans to European SMEs.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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 data and information used for this rating include reports provided by Securitisation Services S.p.A., and loan-level data from the 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 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 on this transaction took place on 14 July 2017 when DBRS confirmed its rating on the Class A Notes at AA (sf).

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”):
-- Probability of Default Rates Used: Base case PD of 7.8%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: Base case recovery rates of 64.6% at the AAA (sf) stress level for the Class A Notes, a 10% and 20% decrease in the base case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Class A Notes at AAA (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Class A Notes at AAA (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: Francesco Amato, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 12 August 2015

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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
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations

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.