DBRS Upgrades Rating of Valsabbina SPV 1 S.r.l. (SME)

DBRS Ratings Limited (DBRS) upgraded its rating of the Class A Notes issued by Valsabbina SPV 1 S.r.l. (SME) (Valsabbina SME or the Issuer) to A (sf) from A (low) (sf).

The rating addresses the timely payment of interest and ultimate payment of principal payable on or before the final legal maturity date in October 2052.

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 October 2018 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (sf) rating level.
-- No revolving termination events have occured.

Valsabbina SME is a securitisation transaction collateralised by a portfolio of mortgage and non-mortgage loans granted by Banca Valsabbina S.p.A. (Banca Valsabbina) and Credito Veronese S.p.A (merged into Banca Valsabbina in 2012) to Italian small and medium-sized enterprises, entrepreneurs and self-employed individuals. The transaction includes a 23-month revolving period, during which Banca Valsabbina may sell new receivables to the Issuer subject to certain conditions and limitations. To date, all of them have been met. The Class A Notes are expected to amortise starting from the January 2019 payment date.

PORTFOLIO PERFORMANCE
As of September 2018, loans that were two- to three-months in arrears represented 0.2% of the outstanding portfolio balance, decreasing from 0.3% as of September 2017. The 90+ delinquency ratio was 0.9% as of September 2018, from 0.5% as of last year. The cumulative default ratio was 0.5% almost two years from the transaction’s closing, increasing from 0.03% as of September 2017.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding pool of receivables and maintained the base case PD assumptions on the worst-case portfolio at 6.2%, based on a PD of 7.8% for mortgage loans and 4.7% for non-mortgage loans, respectively. In addition, at the A (sf) rating level, DBRS maintained the recovery rate base case on the worst-case portfolio at 57.3% and 16.3% for the secured and unsecured loans, respectively.

CREDIT ENHANCEMENT
Credit enhancement (CE) to the Class A Notes is provided by the overcollateralisation of the outstanding collateral portfolio balance. As of the October 2018 payment date, CE to the Class A Notes was 39.4%, in line with that at closing. The reserve fund, which is currently at its target level of EUR 7.2 million (1.8% of the outstanding balance of the Class A Notes), is available to pay senior fees, expenses and missed interest on the Class A Notes.

BNP Paribas Securities Services, Milan Branch is the Account Bank for 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 “Rating CLOs Backed by Loans to European SMEs”.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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/333487/rating-sovereign-governments.pdf.

The sources of data and information used for this rating include servicer reports provided by Banca Valsabbina, payment and investor reports provided by Securitisation Services S.p.A. and loan-by-loan level 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 this transaction took place on 1 December 2017, when the Class A Notes were confirmed at A (low) (sf).

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”):

-- Probability of Default Rates Used: Base Case PD of 6.2%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base Case Recovery Rate of 31.9% at the A (sf) rating level, a 10% and 20% decrease in the base case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would both lead to a downgrade of the Class A Notes to A (low) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% would also lead to a downgrade of the Class A Notes to A (low) (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: Christian Aufsatz, Managing Director
Initial Rating Date: 1 December 2016

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

-- Rating CLOs Backed by Loans to European SMEs
-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Interest Rate Stresses for European Structured Finance Transactions
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

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.