DBRS Upgrades Rating of Class A Notes Issued by Abruzzo 2015 RMBS S.r.l.

DBRS Ratings Limited (DBRS) upgraded its rating of the Class A Notes issued by Abruzzo 2015 RMBS S.r.l. (Abruzzo 2015) to AA (high) (sf) from AA (sf).

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

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.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AA (high) (sf) rating level.

Abruzzo 2015 closed in August 2015 and is a securitisation of a portfolio of Italian first-lien mortgage loans that were originated and serviced by Banca Tercas SpA (Banca Tercas) and Banca Caripe SpA (Banca Caripe). Banca Popolare di Bari S.C.p.A. (Banca Bari) assumed all the rights and obligations of Banca Tercas and Banca Caripe in Abruzzo 2015 following the merger in 2016.

PORTFOLIO PERFORMANCE
As of the end of April 2018, loans more than 90 days delinquent represented 1.2% of the outstanding portfolio balance and the cumulative default rate represented 1.0% of the original portfolio balance at closing. Both arrears and defaults remained low and within DBRS’s expectations.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 8.2% and 10.9%, respectively.

CREDIT ENHANCEMENT
As of the May 2018 payment date, the CE available to the Class A Notes increased to 27.0%, up from 22.0% 12 months prior. The sources of CE are the subordinated notes and overcollateralisation (OC). The transaction’s priority of payments allocates all cash remaining in the account after the payments of senior expenses, net swap amount, interest due on the Class A Notes and replenishment of the Liquidity Reserve as principal to the Class A Notes. Consequently, whenever there is net excess spread in the transaction, the paydown of the Class A Notes principal balance will be faster than the collateral balance reduction, resulting in the buildup of OC.

The transaction benefits from a non-amortising Liquidity Reserve, currently at its target amount of EUR 11.8 million, that is available to cover shortfalls in senior fees and interest on the Class A Notes.
BNP Paribas Securities Services, Milan Branch (BNPP Milan) is the account bank provider to the transaction. Based on the account bank reference rating of BNPP Milan, which is privately rated by DBRS, and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

J.P. Morgan Securities plc (JP Morgan) is the swap counterparty to the transaction. The DBRS private Long-Term Senior Debt Rating of JP Morgan is consistent with the first rating threshold, given the rating assigned to the Class A Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. In addition, JPMorgan Chase Bank, N.A. (rated AA/R-1 (high) by DBRS) acts as the swap guarantor to the transaction.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology”. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction’s 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 investor reports provided by Securitsation Services S.p.A, 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 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 the transaction took place on 10 August 2017, when DBRS upgraded its rating of the Class A Notes to AA (sf) from A (high) (sf).

The lead analyst responsibilities for this transaction have been transferred to Andrew Lynch.

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 remaining collateral 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 for the remaining collateral pool are 8.2% and 10.9%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 28.9% and the LGD is 31.6%.

-- 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 of the Class A Notes would be expected to remain at AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 11 August 2015

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960.

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
-- Derivative Criteria for European Structured Finance Transactions
-- 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.