DBRS Morningstar Confirms Ratings on Berica ABS 4 S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on the bonds issued by Berica ABS 4 S.r.l. (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)
-- Class C Notes confirmed at A (high) (sf)

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date. The ratings on the Class B Notes and Class C Notes address the ultimate payment of interest and principal on or before the legal final maturity date.

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.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

Berica ABS 4 S.r.l. is a securitisation of Italian first-lien residential mortgage loans originated and serviced by Banca Popolare di Vicenza S.p.A. (BPVi) and Banca Nuova S.p.A. Following the administrative compulsory liquidation order of BPVi by the Bank of Italy, Intesa SanPaolo S.p.A. (Intesa SanPaolo) acquired BPVi, including the shareholdings in Banca Nuova S.p.A., and assumed all the transaction responsibilities on 26 June 2017.

PORTFOLIO PERFORMANCE
As of December 2019, loans two to three months in arrears represented 0.9% of the outstanding portfolio balance, down from 1.1% in December 2018. The 90+ delinquency ratio was 2.5%, down from 8.0% in December 2018 and the cumulative default ratio was 4.5%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 7.8% and 7.2%, respectively.

CREDIT ENHANCEMENT
As of the December 2019 payment date, credit enhancement to the Class A Notes was 59.0%, up from 43.9% as of December 2018. Credit enhancement to the Class B Notes was 40.5%, up from 29.9% as of December 2018. Credit enhancement to the Class C Notes was 29.0%, up from 21.2% at the DBRS Morningstar initial rating. Credit enhancement is provided by subordination of junior class notes.

The transaction benefits from a EUR 9.3 million reserve fund. The reserve fund can amortise and has a target balance at 3.00% of the rated notes, with a floor of 1.00%. The reserve fund target is not subject to performance triggers.

Elavon Financial Services DAC, UK branch acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon Financial Services DAC, UK branch, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

J.P. Morgan Securities plc acts as the swap counterparty for the transaction, with JPMorgan Chase Bank, N.A. (rated AA/R-1 (high) by DBRS Morningstar) as the swap guarantor. DBRS Morningstar's private rating of J.P. Morgan Securities plc is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

The rating on the Class C Notes at A (high) (sf) materially deviates from the higher rating implied by the quantitative model. DBRS Morningstar considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by a quantitative model that is a substantial component of a rating methodology; in this case, the rating addresses the ultimate payment of interest and principal on or before the final maturity date as defined in the transaction legal documents. DBRS Morningstar typically expects bonds rated in the AA category in the respective rating scenario to be able to pay interest timely at the time they are the most senior bond in the transaction.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology, December 2019”. DBRS Morningstar 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 at: https://www.dbrsmorningstar.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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by U.S. Bank Global Corporate Trust Services Address, servicer reports provided by Intesa Sanpaolo, and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar 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 5 April 2019, when DBRS Morningstar confirmed the ratings of the Class A, Class B, and Class C Notes at AAA (sf), AA (sf), and A (high) (sf), respectively.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the “Base Case”):

-- DBRS Morningstar 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 7.8% and 7.2%, respectively.
-- 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 remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (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 still be expected to remain at AAA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 10 July 2015

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Master European Structured Finance Surveillance Methodology (13 December 2019).
https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology.

-- Legal Criteria for European Structured Finance Transactions (11 September 2019).
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.

-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020). https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019) European RMBS Credit Model v 1.0.0.0.
https://www.dbrsmorningstar.com/research/354403/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.

-- Rating European Structured Finance Transactions Methodology (28 February 2020).
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology.

-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019).
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.

-- Derivative Criteria for European Structured Finance Transactions (26 September 2019).
https://www.dbrsmorningstar.com/research/350908/dbrs-publishes-updated-derivative-criteria-for-european-structured-finance-transactions.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

This press release was amended on 17 April 2020 to state the model used in the analysis.