DBRS Assigns Ratings to Fucino RMBS S.r.l.

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

-- EUR 128,915,000 Class A Notes (ISIN IT0005368003) at AA (low) (sf)
-- EUR 5,997,000 Class B Notes (ISIN IT0005368011) at A (low) (sf)

The rating assigned to the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in December 2060. The rating assigned to the Class B Notes addresses the ultimate payment of interest and principal on or before the Final Maturity Date. DBRS does not rate the EUR 14,990,000 Class J Notes (ISIN IT0005368029).

The purchase of the portfolio (the Portfolio) is funded via the issuance of Class A, Class B and Class J Notes. The structure benefits from a cash reserve, fully funded at EUR 4,721,920 through a limited recourse loan granted by Igea Banca S.p.A. The cash reserve, which provides liquidity support, is equal to 3.5% of the Rated Notes’ outstanding balance with a floor of 1% of their initial balance, and can be used for the payment of senior fees, expenses, and interest on the Class A notes.

The Class A Notes benefit from 14% credit enhancement (calculated as a percentage of the Portfolio) at closing, and the Class B Notes benefit from 10% credit enhancement. It should be noted that credit enhancement is also available through the cash reserve to the extent available, as released amounts of the reserve will form part of the available funds.

The Portfolio consists of Italian residential mortgage loans originated by Banca del Fucino S.p.A. (Fucino), which is also the Servicer of the pool. Centotrenta Servicing S.p.A. has been appointed as Back-Up Servicer.

As of 27 February 2019, the Portfolio consisted of 1,599 mortgage loans granted to 1,515 borrowers. The total balance of the Portfolio is EUR 150 million. The average loan balance is EUR 93,564. The weighted-average (WA) seasoning of the Portfolio is 6.6 years with a WA residual maturity of 15.6 years. The WA loan-to-value of the Portfolio is 41.6%. The Portfolio is mainly distributed in the Lazio (81.7%) and Abruzzo (15.0%) regions.

The Portfolio is split between 84.3% floating- and 15.7% fixed-rate loans. Of the floating-rate loans, 4.1% (of the total pool) include an interest rate cap, set at 6%. The majority of floating-rate loans (86.6% of the floating-rate pool) is indexed to six-month Euribor.

Three swap transactions are in place: two to hedge the basis risk, and one to hedge the fixed-floating interest rate risk. JP Morgan AG acts as swap counterparty. DBRS has given limited credit only to the fixed-floating swap transaction, as the swap documentation is not fully consistent with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Transaction Account Bank is BNP Paribas Securities Services, Milan Branch: based on its ratings and on the replacement provisions included in the documentation, DBRS considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.

The ratings are based upon review by DBRS of the following analytical considerations:

-- The transaction capital structure, form and sufficiency of available credit enhancement and liquidity provisions.
-- The Portfolio characteristics. The European RMBS Credit Model was used to estimate the expected probability of default (PD), loss given default (LGD) and expected loss of the Portfolio.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the Notes.
-- Incorporation of a sovereign-related stress component in the stress scenarios as a result of the BBB (high) rating assigned by DBRS to the Republic of Italy.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

In its cash flow analysis, DBRS has applied a conditional prepayment rate (CPR) ranging from 0% to 15% in its nil, slow, middle and fast scenarios. DBRS has not considered the 20% CPR scenario taking into consideration the prepayment rate observed in the historical performance data provided by the Originator.

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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for these ratings include historical performance, default, recovery and prepayment data, stratification tables and loan-level data provided by the arranger of the transaction.

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 a newly rated financial instrument. These are the first DBRS ratings on this financial instrument.

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 rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case): in respect of the Class A Notes, the PD and LGD at the AA (low) (sf) stress scenario of 22.30% and 22.39%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS concludes the following impact on the Class A Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)

DBRS concludes the following impact on the Class B Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (low) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to 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: Antonio Laudani, Vice President
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 15 April 2019

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.

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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.