DBRS Confirms Rating of Brera SEC S.r.l.

DBRS Ratings Limited (DBRS) confirmed the A (high) (sf) rating of the Class A notes issued by Brera SEC S.r.l. (the Issuer).

The rating addresses the timely payment of interest and ultimate payment of principal payable on or before the final legal maturity date in November 2071.

The confirmation 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 August 2018 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A notes to cover the expected losses at the A (high) (sf) rating level.

Brera SEC S.r.l. is a securitisation of Italian residential mortgage loans originated by Intesa Sanpaolo S.p.A. and the following subsidiaries: Banco di Napoli S.p.A., Cassa di Risparmio in Bologna S.p.A., Cassa di Risparmio del Friuli Venezia Giulia S.p.A. and Cassa dei Risparmi di Forli' e della Romagna S.p.A., which also act as the servicers, sellers and receivables account banks of this transaction. The transaction, which follows the standard structure under the Italian securitisation law, closed in December 2017 when the special-purpose vehicle issued one senior class of floating-rate notes (the Class A notes) and one junior class of fixed-rate and additional-return notes (the Class B notes).

PORTFOLIO PERFORMANCE
As of June 2018, loans that were two- to three-months in arrears represented 0.1% of the outstanding portfolio balance. The 90+ delinquency ratio was 0.2% as of March 2018. The cumulative default ratio was 0.049% almost one year from the transaction’s closing.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 7.1% and 14.1% respectively.

CREDIT ENHANCEMENT
The Class A notes benefit from credit enhancement provided by the outstanding performing portfolio balance. The credit enhancement has increased as the transaction deleverages. As at the August 2018 payment date, credit enhancement to the Class A notes was 16.1%, up from 15.0% at the transaction’s closing.

The transaction benefits from an amortising liquidity reserve, which is available to provide support to the Class A notes throughout the life of the transaction by covering senior fees and shortfall of interest payments (and principal at the final maturity date or redemption date). The cash reserve was established at closing for an amount equal to 2.5% of the Class A notes principal amount, or EUR 150 million. At each payment date, the reserve will be replenished up to 2.5% of the principal outstanding amount of the Class A notes at the previous calculation date. The reserve is currently at its target level of EUR 143.8 million and has been at target since closing.

Intesa Sanpaolo S.p.A. is the Account Bank of the transaction. The DBRS public rating of the Account Bank 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 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 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 and payment reports provided by Securitisation Services S.p.A., servicer reports provided by Intesa Sanpaolo S.p.A. and loan-level data provided by 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 purpose 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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Ilaria Maschietto.

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 of the current pool of loans for the Issuer are 7.1% and 14.1%, respectively.
-- The respective PD and LGD of the current pool at the A (high) (sf) rating level are 21.7% and 29.9%.
-- 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 fall to BBB (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to fall to BB (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 BB (high) (sf).

Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (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: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 11 December 2017

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