DBRS Downgrades Rating of Class A Notes Issued by Valsabbina SPV 1 S.r.l. (RMBS) Following Restructuring

DBRS Ratings Limited (DBRS) downgraded the rating of the Class A Notes issued by Valsabbina SPV 1 S.r.l. (RMBS) (the Issuer) to AA (sf) from AAA (sf).

The downgrade of the Class A Notes is based on the following analytical considerations:
-- A structural amendment to the transaction signed on 20 July 2018 (the 2018 Restructuring) and effective as of the interest payment date on 27 July 2018.
-- Portfolio performance in terms of delinquencies, defaults and losses.
-- Updated default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected loss at the AA (sf) rating level.

Valsabbina SPV 1 is a securitisation of first-ranking Italian residential mortgage loans originated by Banca Valsabbina S.C.p.A and Credito Veronese S.p.A. The Class A Notes were originally issued in January 2012 and rated AAA (sf) by DBRS. In January 2015, through the additional issuance of Class A Notes, additional loans totalling EUR 151.5 million were purchased, and the reserve fund was increased to EUR 12.8 million from EUR 8.3 million. The additional purchased loans were originated by Credito Veronese S.p.A., which Banca Valsabbina acquired in April 2011.

STRUCTURAL AMENDMENT
The key features of the 2018 Restructuring are as follows:
-- The purchase of an additional collateral portfolio funded through the additional issuance of Class A Notes, which increased the outstanding principal amount of the Class A Notes to EUR 366.6 million from EUR 37.7 million.
-- The absolute amount of the reserve fund, which was also funded through the additional issuance of Class A Notes,
increased to EUR 11.0 million from EUR 2.7 million. The reserve fund represents 3.0% of the outstanding Class A Notes balance, down from 5.0% prior to the 2018 Restructuring, and is available to cover senior fees and Class A interest.
-- The reduction of the interest rate cap on the Class A Notes three-month Euribor reference rate to 3.0% from 8.0% prior to the 2018 Restructuring.
-- The introduction of a target amortisation formula for the Class A Notes.
-- The novation of the back-up servicer role to Cassa di Risparmio di Asti from Nuova Cassa di Risparmio di Ferrara S.p.A. pre-restructuring.

PORTFOLIO ASSUMPTIONS
DBRS adjusted its base case PD and LGD assumptions on the collateral pool to 13.1% and 24.9% from 10.5% and 21.5% respectively. The increases in PD and LGD were driven by a reassessment of the default and recovery vintage data provided by FISG S.r.l. in its capacity as Arranger.

CREDIT ENHANCEMENT
Post-2018 Restructuring, credit enhancement to the Class A Notes decreased to 21.5% from 73.4% on the April interest payment date. Credit enhancement to the Class A Notes consists of subordination of the Class B Notes.

BNP Paribas Securities Services, Milan Branch acts as the account bank for the transaction. The DBRS private rating of BNP Paribas 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 methodologies applicable to the rating are: “Master European Structured Finance Surveillance Methodology” and “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”.

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

DBRS has conducted a review of the transaction’s legal documents provided in the context of the aforementioned amendments. A review of any other transaction’s legal documents was not conducted as the 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 includes data and information provided by FISG S.r.l.
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 on this transaction took place on 12 January 2018, when DBRS confirmed its rating of AAA (sf) on the Class A Notes.

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 with the parameters used to determine the rating (the Base Case):
-- DBRS expected a lifetime base-case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base-case PD and LGD assumptions of the current portfolio collateral are 13.1% and 24.9%, respectively. At the AA (sf) rating level, the corresponding PD is 36.0% and the LGD is 50.2%.
-- 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 fall to BBB (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to fall to A (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A Notes would be expected to fall to BB (high) (sf).

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

For further information on DBRS historic 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: 31 January 2012

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The rating methodologies used in the analysis of these transactions 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
-- 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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.