Press Release

DBRS Morningstar Confirms Ratings on Notes Issued by SME Grecale 2017 S.r.l.

Structured Credit
November 03, 2020

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the notes issued by SME Grecale 2017 S.r.l. (SME Grecale 2017), as follows:

-- Class A notes at AAA (sf)
-- Class B notes at AA (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 in March 2056. The rating on the Class B notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of the September 2020 payment date.
-- The base case probability of default (PD) and default and recovery rates on the receivables.
-- The current available credit enhancement to the notes to cover the expected losses at their respective rating levels.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

SME Grecale 2017 is a securitisation transaction collateralised by a portfolio of mortgage and non-mortgage loans to Italian small and medium-size enterprises, entrepreneurs, and self-employed individuals granted by Unipol Banca S.p.A. (Unipol). The transaction follows the standard Italian structure under the Italian Securitisation Law nr. 130 and closed in November 2017.

The transaction’s performance has been stable over the last year. As of the September 2020 payment date, loans that were two to three months in arrears represented 0.1% of the outstanding portfolio balance, whereas the 90+ delinquency ratio was 1.2%. The cumulative default ratio stood at 1.3%.

DBRS Morningstar conducted a loan-by-loan analysis on the outstanding pool of receivables and updated the portfolio’s one-year base case PD assumption to 5.3%, following coronavirus-related adjustments. In addition, DBRS Morningstar maintained the recovery rate base case on the portfolio at 48.4% and 13.5% for the secured and unsecured loans, respectively, at the AAA (sf) rating level, and at 51.8% and 15.8% for the secured and unsecured loans, respectively, at the AA (high) (sf) rating level. The increased base case PD assumption reflects the adjustments applied due to the coronavirus pandemic. As per DBRS Morningstar’s assessment, 3.2% and 14.2% of the outstanding portfolio balance represented industries classified in mid-high and high risk economic sectors, respectively, which led to the underlying one-year probability of defaults (PD) to be multiplied by 1.5 and 2.0 times, respectively, as per the relevant commentaries mentioned below.

On 18 May 2020, DBRS Morningstar released its commentary, “European Structured Credit Transactions’ Risk Exposure to Coronavirus (COVID-19) Effect” where DBRS Morningstar discussed the overall risk exposure of the SME sector to the coronavirus and provided a framework for identifying the transactions that are more at risk and likely to be affected by the fallout of the pandemic on the economy. For more details, please see: and

As of the September 2020 payment date, credit enhancement to the Class A notes was 89.5%, up from 70.0% at the last rating action on this transaction one year ago. Credit enhancement to the Class B notes was 64.6%, up from 50.2% one year ago. Credit enhancement is provided by the overcollateralisation of the outstanding collateral portfolio balance. The reserve fund, which is currently at its target level of EUR 8.8 million, is available to pay senior fees, expenses and missed interest on the Class A notes.

BNP Paribas Securities Services SCA/Milan acts as the account bank for the transaction. Based on the private rating of BNP Paribas Securities Services SCA/Milan, 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 AG acts as the swap counterparty of four hedging agreements consisting of two basis swaps, one fixed-to-floating swap and a cap. DBRS Morningstar has only given credit to the fixed-to-floating swap in its analysis, as the swap documentation for the rest is not consistent with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.

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 payment holidays and delinquencies may increase in the coming months for many SME transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

For this transaction, DBRS Morningstar increased the expected default rate on receivables granted to obligors operating in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus. Additionally, DBRS Morningstar conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio. As of 30 September 2020, around 37.4% of the current portfolio balance benefited from any type of payment moratorium.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: and The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs” (30 September 2020).

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:

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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at:

The sources of data and information used for these ratings include payment and investor reports provided by Zenith Service S.p.A., servicer reports provided by Unipol, 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 7 November 2019, when DBRS Morningstar confirmed its rating on the Class A notes at AAA (sf) and upgraded its rating on the Class B notes to AA (high) (sf) from A (high) (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the base case):
-- PD Rates Used: Base case PD of 5.3%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rates of 42.1% and 45.3% at the AAA (sf) and AA (high) (sf) rating levels, respectively, a 10% and 20% decrease in the base case recovery rate.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Class A notes at AAA (sf) and a confirmation of the Class B notes at AA (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would also lead to a confirmation of the Class A notes at AAA (sf) and a confirmation of the Class B notes at AA (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:

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

Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 24 October 2017

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:

-- Rating CLOs Backed by Loans to European SMEs (30 September 2020) and DBRS Morningstar SME Diversity Model,
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020),
-- Cash Flow Assumptions for Corporate Credit Securitizations (21 July 2020),
--Rating CLOs and CDOs of Large Corporate Credit (21 July 2020),
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (21 September 2020),
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020),
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020),

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at

For more information on this credit or on this industry, visit or contact us at