DBRS Confirms Ratings on BPL Mortgages S.r.l., Series V

DBRS Ratings Limited (DBRS) confirmed its ratings on the Class A-2012 Notes and Class A-2016 Notes (together, the Class A Notes) issued by BPL Mortgages S.r.l., Series V (the Issuer) at A (high) (sf).

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The overall portfolio performance in terms of level of delinquencies and cumulative net losses, as at the July 2018 payment date;
-- Updated probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool;
-- The current available credit enhancement (CE) to the Class A Notes to cover expected losses assumed in line with the A (high) (sf) rating level.

The ratings on the Class A Notes address the timely payment of interest and ultimate payment of principal payable on or before the Maturity Date in October 2058.

The Issuer is an Italian securitisation collateralised by a portfolio of residential mortgage loans granted by Banco Popolare – Società Cooperativa (BP), which merged with Banca Popolare di Milano S.C.a.r.l. into Banco BPM SpA (Banco BPM) in January 2017. The transaction closed in December 2012 and, in October 2016, following a restructuring, the Issuer acquired another portfolio of loans, the Subsequent Portfolio, from BP and sold all the non-performing loans, as well as loans eligible for the covered bonds programme. The acquisition of the Subsequent Portfolio was financed through the issuance of the Class A-2016 Notes, whose proceeds were also used to partially redeem the Class B-2012 Notes.

As at 31 July 2018, the aggregate balance of the Class A Notes was EUR 1,597.8 million and the balance of the Class B-2012 Notes was EUR 392.8 million. The EUR 2,275.4 million securitised portfolio (excluding defaulted receivables) consists of loans backed both by residential (89.0%) and commercial properties (11.0%). The pool includes optional mortgages (26.5%), where the borrower has the option to switch from fixed rate to floating rate (or vice versa) every three years from the origination date. The portfolio also contains offset mortgages (1.8%), which allow the debtor to set off the instalment amount with any interest accrued on his/her current account.

PORTFOLIO PERFORMANCE
As at the July 2018 payment date, 30-to-60-day and 60-to-90-day delinquencies represented 0.2% and 0.5% of the outstanding principal balance of the portfolio, respectively, while loans delinquent by more than 90 days were 0.9%. Gross cumulative defaults stood at 0.8% of the portfolio balance as at the restructuring date, with cumulative recoveries to date of 1.3%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its base case PD and LGD assumptions on the outstanding portfolio to 17.3% and 39.3%, respectively.

CREDIT ENHANCEMENT
As of July 2018, CE to the Class A Notes was 29.8%, up from 24.3% in July 2017. CE to the Class A Notes is provided by the subordination of the Class B-2012 Notes and overcollateralisation.

The transaction benefits from a non-amortising cash reserve which is available to cover senior expenses shortfalls and missed interest payments on the Class A Notes. This account is currently funded at its EUR 64.0 million target level.

Banco BPM acts as Transaction Bank for this transaction, holding the cash reserve, while BNP Paribas Securities Services, London branch (BNP London) acts as Additional Transaction Bank, holding the collections and expenses account. On the basis of Banco BPM’s reference rating being one notch below its DBRS’s Long-Term Critical Obligations Rating of BBB (high) and the DBRS private rating of BNP London, the downgrade provisions outlined in the transaction documents and the transaction structural mitigants, DBRS considers the risk arising from the exposure to both entities to be consistent with the ratings assigned to the Class A Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transactions 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 actions.

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 these ratings include servicer reports provided by Banco BPM, investor reports provided by BNP Paribas Securities Services, Milan Branch 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 transaction restructuring in October 2016, 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 these ratings 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 27 October 2017, when DBRS confirmed the ratings on the Class A Notes at A (high) (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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- DBRS expected a base case PD and LGD for the portfolio 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 of the current pool of receivables are 17.3% and 39.3%, respectively. At the A (high) (sf) rating level, the corresponding PD is 36.5% and the LGD 52.8%.

-- The Risk Sensitivity below illustrates the ratings expected for the Class A Notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the ratings of the Class A Notes would be expected to decrease to A (sf), all else being equal. If the PD increases by 50%, the ratings of Class A Notes would be expected to decrease to BBB (high) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the ratings of the Class A Notes would be expected to decrease to BB (high) (sf), all else being equal.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (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: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 24 December 2012

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Rating CLOs Backed by Loans to European SMEs
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers

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.