DBRS Assigns Ratings to Asti Group RMBS II S.r.l.

DBRS Ratings Limited (DBRS) assigned the following ratings to the EUR 825,000,000 Class A Notes (Class A Notes) and EUR 64,300,000 Class B Notes (Class B Notes; together with the Class A Notes, the Rated Notes) issued by Asti Group RMBS II 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 payment of principal on or before the Final Maturity Date in December 2072.

The rating assigned to the Class B Notes addresses the timely payment of interest, when they are the most-senior notes only after the redemption of the Class A Notes, and the ultimate payment of principal on or before the Final Maturity Date.
DBRS does not rate the EUR 98,708,000 Class J Notes.

The purchase of the portfolio is funded by the issuance of the Class A, Class B and Class J Notes. The transaction structure benefits from a cash reserve, fully funded to EUR 17,800,000 through a subordinated loan granted by the Originators. The cash reserve, which provides liquidity support, is equal to 2% of the outstanding balance of the Rated Notes and has a floor of 1% of the Rated Notes’ initial balance. The cash reserve can be used to pay senior fees, expenses and interest on the Rated Notes.

At closing, the Class A Notes benefitted from 16.5% credit enhancement (calculated as a percentage of the portfolio) and the Class B Notes benefitted from 10% credit enhancement. Credit enhancement is also available through the cash reserve to the extent funds are available, as released amounts of the reserve will form part of the available funds.

The portfolio consists of Italian residential mortgage loans originated by Cassa di Risparmio di Asti S.p.A. (Asti), which orginated 87.3% of the pool, and Cassa di Risparmio di Biella e Vercelli - BiverBanca S.p.A. (Biverbanca), which originated 12.7% of the pool. Asti and Biverbanca are also the Servicers of the pool. Banca Valsabbina S.C.p.A. was appointed as the Backup Servicer.

As of 31 May 2019, the portfolio consisted of 10,000 mortgage loans granted to 9,921 borrowers. The total balance of the portfolio is EUR 988 million. The average loan balance is EUR 98,801. The weighted-average (WA) seasoning of the portfolio is 2.5 years with a WA residual maturity of 19.1 years. The WA loan-to-value of the portfolio is 56.9%. The portfolio is mainly distributed in the northern Italian regions of Piedmont (62.8% by loan balance) and Lombardy (33.6%).

The portfolio is split among floating-rate-for-life loans (19.4% of the loan balance), fixed-rate-for-life loans (15.6%) and optional loans (64.9%). The optional loans, which currently comprise 40.8% fixed-rate loans and 24.1% floating-rate loans, each have the option to switch to a different interest rate type every three or ten years. The majority of floating-rate loans (99.5% of the floating-rate pool) are indexed to six-month Euribor.

There are no swap transactions in place. Consequently, the structure is unhedged against interest rate and basis risk arising from the mismatch between assets (which currently pay a fixed rate for 56.4% of the pool, but potentially this percentage could raise to 80.6% due to the options granted to the relevant borrowers) and liabilities (indexed to three-month Euribor). However, the cap rates applied to the Class A Notes and Class B Notes (2.5% and 3.5%, respectively, for the first two years, and 3.5% and 4.5% afterward) partially mitigate the interest rate risk in rising interest rates scenarios.

The transaction account bank is BNP Paribas Securities Services, Milan branch. Based on DBRS’s rating of the account bank and the replacement provisions included in the documentation, DBRS considers the counterparty risk to be consistent with the ratings assigned, in accordance with its “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 10%. DBRS did not consider the 20% CPR scenario in its analysis.

The transaction structure was analysed using Intex Deal Maker.

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 originators.

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 28.20% and 47.00%, 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 BBB (high) (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 A (low) (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 BB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (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 (low) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (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 BB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (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: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 June 2019

DBRS Ratings Limited
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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
-- 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.