DBRS Upgrades Rating of Class A Notes Issued by Credico Finance 12 S.r.l.

DBRS Ratings Limited (DBRS) upgraded its rating of the Class A Notes issued by Credico Finance 12 S.r.l. (the Issuer) to AAA (sf) from AA (sf).

The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance in terms of delinquencies, defaults and losses as of the June payment date.
-- Updated default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected loss at the AAA (sf) rating level.

Credico Finance 12 S.r.l. is a securitisation of first-lien Italian residential mortgages originated by 35 co-operative banks (BCCs) and is currently serviced by 33 BCCs. The transaction follows the standard structure under Italian securitisation law and closed in August 2013.

PORTFOLIO PERFORMANCE
As of June 2018, loans in two- to three-month arrears represented 0.9% of the outstanding portfolio balance, up from 0.5% in June 2017. The 90+ delinquency ratio was 1.3%, up from 1.2% in June 2017, and the cumulative loss ratio was 0.8%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated the probability of default (PD) and loss given default (LGD) assumptions on the collateral pool to 26.9% and 16.3% at the AAA (sf) rating level.

CREDIT ENHANCEMENT
The CE available to the Class A Notes has increased over the year as the transaction continues to deleverage. The current CE consisting of subordination of the Class B1-B35 Notes and a portion of the Cash Reserve stands at 30.4% of the performing collateral portfolio. The transaction benefits from a Cash Reserve that is available to cover senior fees and interest and is partially available to cover principal shortfall on the Class A Notes. The Cash Reserve is non-amortising and currently at its target level of EUR 41.7 million.

BNP Paribas Securities Services SCA, Milan Branch and BNP Paribas Securities Services SCA, London Branch are the Transaction Bank and English Transaction Bank for the transaction, respectively. The Transaction Bank holds the payment account, collection account, cash reserve accounts and the reserve account. The English Transaction Bank holds the investment account and principal amortisation reserve account. The DBRS private ratings of both entities 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: “Master European Structured Finance Surveillance Methodology”.

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

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 Accounting Partners S.r.l. and loan-by-loan 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 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 31 July 2017, when DBRS confirmed its rating of AA (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 3.5% and 1.64%, respectively. At the AAA (sf) rating level, the corresponding PD is 26.9% and the LGD is 16.3%.
-- 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 be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (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 be at AAA (sf).

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (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: 12 August 2013

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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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Servicers
-- 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.