DBRS Assigns Ratings to the Class A Notes and the Class B Notes Issued by Kobe SPV S.r.l.

DBRS Ratings Limited (DBRS) assigned the following ratings to the Class A Notes and the Class B Notes (together, the Rated Notes) issued by Kobe SPV S.r.l. (the Issuer):

-- Class A Notes at AA (low) (sf)
-- Class B Notes at BBB (high) (sf)

The rating assigned to the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the final maturity date in October 2058. The rating assigned to the Class B Notes addresses the ultimate payment of interest and repayment of principal by the final maturity date.

The Issuer is an Italian securitisation collateralised by a portfolio of first-ranking residential mortgage loans granted to individuals and producer families. Loans were originated by two local banks operating in the Piedmont region: Banca Alpi Marittime Credito Cooperativo Carrù Società Cooperativa Per Azione (BAM; 49.4% of the initial portfolio) and Banca Cassa di Risparmio di Savigliano S.p.A. (CRS; 50.6% of the initial portfolio). BAM and CRS (together, the Originators) will act as servicers of their respective portfolios and as backup servicers to each other. Even though amounts collected in relation to each portfolio will be allocated to two separate waterfalls, full cross-collateralisation will be in place from the closing date.

The economic effect of the transfer of the portfolios to the Issuer took place on 1 November 2018 (the Valuation Date). As at the Valuation Date, the overall portfolio consisted of 3,120 loans extended to 3,039 borrowers, with an aggregate principal balance of EUR 300.6 million, EUR 3.8 million of which was one-month in arrears.

The transaction consists of EUR 260.0 million of Class A Notes, EUR 10.5 million of Class B Notes and two series of Class J Notes, the Class J1 Notes and the Class J2 Notes, with an aggregate balance of EUR 39.3 million. The Class J Notes were sized in proportion to each Originator’s portfolio balance.

The credit enhancement (CE) for the Class A Notes is 16.6% and for the Class B Notes is 13.1%. CE is provided by the subordination of the junior obligations and the liquidity reserve, which will be available to cover missed senior expenses and any interest shortfalls on the Rated Notes, as well as to amortise the Rated Notes at their final redemption date. This reserve was funded at closing with EUR 9.2 million through part of the proceeds of the Class J Notes issuance, and it has a target balance equal to 3.4% of the Rated Notes subject to a EUR 2.7 million floor.

The structure comprises a combined priority of payments, according to which the notes will be amortised sequentially. All excess interest will be used to repay the Rated Notes before junior payments are made.
The Issuer accounts will be held by the Bank of New York Mellon SA/NV, Milan branch (BNY Mellon – Milan) and the Bank of New York Mellon Corporation, London branch (BNY Mellon – London), and all amounts collected by the servicers will transferred within one business day to the relevant Issuer account. Based on the DBRS rating of BNY Mellon – Milan at AA, the downgrade provisions outlined in the documents, and the transaction structural mitigants, DBRS considers the risk arising from the exposure to BNY Mellon – Milan and BNY Mellon – London to be consistent with the ratings assigned to the Rated Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

The ratings assigned to the Rated Notes are based on the following analytical considerations:

-- The transaction capital structure, including the form and sufficiency of available credit enhancement to support DBRS-projected expected cumulative losses under the various stressed scenarios.
-- The transaction’s ability to withstand stressed cash flows assumptions and repay the noteholders according to the terms and conditions of the notes. Although the Class A Notes did not pass the 20% conditional prepayment rate (CPR) stress in the down interest rate front- and back-loaded default scenario, DBRS disregarded the two scenarios, considering the small size of the principal losses observed and historical CPR rates. DBRS will continue to monitor prepayment rates as part of its surveillance process.
-- The credit quality of the portfolio and DBRS’s probability of default (PD), loss-given default (LGD) and expected loss assumptions.
-- DBRS’s qualitative assessment of BAM and CRS capabilities with regards to originations, underwriting and servicing.
-- The transaction parties’ financial strength in order to fulfil their respective roles.
-- The sovereign rating of the Republic of Italy at BBB (high) with a Stable trend.
-- The transaction’s legal structure and its consistency with DBRS’s Legal Criteria for European Structured Finance Transactions methodology, as well as the presence of the appropriate legal opinions that address the true sale of the assets to the Issuer.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.

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

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 the Arranger, A&F S.r.l. S.t.p.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

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.

These ratings concern newly issued financial instruments. These are the first DBRS ratings on these financial instruments.

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 12.3% and 23.3%, respectively. At the AA (low) (sf) rating level, the corresponding PD is 32.6% and the LGD is 47.7%, and at the BBB (high) (sf) rating level the corresponding PD and LGD are 26.8% and 38.0%, respectively.

-- The Risk Sensitivity below illustrates the ratings expected for the Rated 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 rating of the Class A Notes would be expected to be downgraded to BBB (sf) and the rating of the Class B Notes to BB (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to be downgraded to BBB (low) (sf) and the rating of the Class B Notes to BB (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to be downgraded to BB (sf) and the rating of the Class B Notes to BB (low) (sf), ceteris paribus.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low)(sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (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, expected rating of BBB (low) (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 (sf)

Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (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: Christian Aufsatz, Managing Director
Initial Rating Date: 30 November 2018

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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 Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.