DBRS Morningstar Confirms Ratings on Credico Finance 9 S.r.l. and Credico Finance 10 S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) confirmed the AAA (sf) ratings on the Class A Notes issued by Credico Finance 9 S.r.l. (CF9) and Credico Finance 10 S.r.l. (CF10).

The ratings on the Class A Notes address the timely payment of interest and ultimate payment of principal on or before the respective final maturity dates.

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the April 2020 payment date for both transactions.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

CF9 and CF10 are securitisations of Italian residential mortgage loans originated by multiple Italian co-operative banks (Banca di Credito Cooperativo or BCC) belonging to the ICCREA Banca S.p.A. (ICCREA) network. The portfolios are serviced by several BCCs, with ICCREA acting as backup servicer in both transactions. CF9 closed in July 2011, while CF10 closed in April 2012.

PORTFOLIO PERFORMANCE

The portfolios are performing within DBRS Morningstar’s initial expectations. As of the February 2020 cut-off, loans that were two- to three-month in arrears represented 0.1% and 0.4% of the outstanding portfolio balances of CF9 and CF10, respectively, both at stable levels compared with the February 2019 cut-off. The 90+ delinquency ratio was 1.0% and 0.7% for CF9 and CF10, respectively, both stable from last year. As of the February 2020 cut-off, the cumulative gross default ratio was 0.7% and 0.5% of the initial portfolio balances of CF9 and CF10, respectively, stable from the February 2019 cut-off.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS

DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 3.0% and 0.4%, respectively, for CF9 and to 3.2% and 3.8%, respectively, for CF10.

CREDIT ENHANCEMENT

Overcollateralisation of the outstanding collateral portfolio provides credit enhancement and includes an amount equal to the difference between the cash reserve and 4% of the outstanding balance of the Class A Notes as at the immediately preceding payment date. As of the April 2020 payment date, credit enhancement to the Class A Notes was 55.7% and 67.3% for CF9 and CF10, respectively, up from 49.1% and 52.6% for CF 9 and CF10, respectively, as of the April 2019 payment date.

The transaction structures benefits from a cash reserve, which provides liquidity support and is able to cover senior fees and expenses as well as interest shortfalls on the Class A Notes. The reserves are currently at their target level of EUR 26.7 million and EUR 79.2 million for CF9 and CF10, respectively.

BNP Paribas Securities Services SCA/Milan acts as the Italian account bank for the transactions, with BNP Paribas Securities Services SCA, London branch appointed as the English account bank. Based on the private rating of the account banks, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account banks to be consistent with the ratings 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 is the swap counterparty for CF9. The DBRS Morningstar’s private rating of the swap counterparty is consistent with the first rating threshold, as defined in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transaction structures in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, additional stresses to expected performance as a result of the global efforts to contain the spread of the coronavirus. On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentary: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced report.

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.

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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of these transactions 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 these transactions are listed at the end of this press release. These may be found at: http://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 and servicer reports provided by Accounting Partners S.p.A. 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 rating, DBRS Morningstar was not 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 actions on these transactions took place on 23 April 2019, when DBRS Morningstar confirmed the ratings on the Class A Notes of CF9 and CF10 at AAA (sf).

The lead analyst responsibilities for these transactions have been transferred to Daniele Canestrari.

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 rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (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.

-- For CF9, the base case PD and LGD of the current pool of loans for the Issuer are 3.0% and 0.4%, respectively.
-- For CF10, the base case PD and LGD of the current pool of loans for the Issuer are 3.2% and 3.8%, 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. Taking the Class A Notes of CF9 as example, if the LGD increases by 50%, the rating on 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 on 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 on the Class A Notes would be expected to remain at AAA (sf).

CF9: 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)

CF10: 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)

For further information on DBRS Morningstar 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 GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
CF9 Initial Rating Date: 11 July 2011
CF10 Initial Rating Date: 25 April 2012

DBRS Ratings GmbH
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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 these transactions can be found at: http://www.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Master European Structured Finance Surveillance Methodology (22 April 2020)
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- 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) and 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
-- Interest Rate Stresses for 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/350907/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 http://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].