Press Release

DBRS Morningstar Upgrades Ratings on 2019 Popolare Bari RMBS S.r.l.

RMBS

September 15, 2021

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the notes issued by 2019 Popolare Bari RMBS S.r.l. (the Issuer) as follows:

-- Class A1 notes to AAA (sf) from AA (high) (sf)
-- Class A2 notes to AA (sf) from A (high) (sf)
-- Class B notes to A (high) (sf) from A (low) (sf)

The rating on the Class A1 notes addresses the timely payment of interest and the ultimate payment of by the final maturity date in May 2069. The ratings on the Class A2 and Class B notes address the ultimate payment of interest and principal by the final maturity date.

The upgrades follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the August 2021 payment date.
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the rated 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.

2019 Popolare Bari RMBS S.r.l. is a securitisation of Italian prime residential mortgage loans originated and serviced by Banca Popolare di Bari S.p.A. (BPB) and Cassa di Risparmio di Orvieto S.p.A. (CRO). BPB is the holding company of Banca Popolare di Bari group, and CRO is one of its subsidiaries. BPB is the master servicer in the transaction, with Zenith Services S.p.A. acting as backup servicer.

PORTFOLIO PERFORMANCE
As of the July 2021 cut-off date, delinquencies were low with loans two to three months and 90+ days in arrears representing 0.3% and 0.7% of the outstanding portfolio balance, respectively, both decreasing from the July 2020 cut-off date. Gross cumulative defaults were 0.5% of the initial portfolio balance, with insignificant recoveries recorded so far. The number of borrowers still in payment holidays was negligible for the purpose of the analysis.

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 10.6% and 13.3%, respectively, up from 8.4% and 8.8%, respectively, as of the latest annual review of the transaction. The higher PD and LGD assumptions are the result of the updated “European RMBS Insight: Italian Addendum” and corresponding European RMBS Insight Model.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement to the rated notes. As of the August 2021 payment date, credit enhancement to the Class A1, Class A2, and Class B notes was 30.4%, 26.8%, and 21.9%, respectively, up from 23.1%, 19.7% and 15.3%, respectively, as of the August 2020 payment date. The increase in credit enhancement was the main driver behind the rating upgrades.

The cash reserve provides liquidity support to the Class A1 Notes only. It is available to cover shortfalls on senior fees, expenses, swap payments, and missed interest payments. The reserve is non-amortising, currently at its target level of EUR 15.0 million (or 2.25% of the Class A1 and Class A2 notes initial balance), and will be released upon the Class A1 Notes’ full redemption.

BNP Paribas Securities Services, Milan branch acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on the account bank, 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 bank to be consistent with the rating assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

An interest rate swap is in place to hedge fixed-floating interest rate risk, with NatWest Markets Plc acting as the swap counterparty. Based on its Long Term Critical Obligations Rating rating of “A” and on the collateral posting provisions included in the documentation, DBRS Morningstar considers the risk arising from the swap counterparty to be consistent with the ratings assigned to the notes, in accordance with the “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many RMBS transactions. The ratings are based on additional analysis 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 for self-employed borrowers, assumed a moderate decline in residential property prices, and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand potentially high levels of payment holidays in the portfolio.

The DBRS Morningstar Sovereign group releases baselines macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. For details see the following commentary: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the referenced report.

On 14 June 2021, DBRS Morningstar updated its 5 May 2020 commentary outlining the impact of the coronavirus crisis on performance of DBRS Morningstar-rated RMBS transactions in Europe one year on. For more details, please see: https://www.dbrsmorningstar.com/research/380094/the-impact-of-covid-19-on-european-mortgage-performance-one-year-on and https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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.

The rating on the Class B 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 by the final maturity date as defined in the transaction legal documents. DBRS Morningstar typically expects bonds rated in the AA (sf) category to be able to pay interest on a timely basis at the time they are the most senior bond outstanding.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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.

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.

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: https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by Banca Finanziaria Internazionale S.p.A., servicer reports provided by BPB 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 15 October 2020, when DBRS Morningstar confirmed its AA (high) (sf) and A (high) (sf) ratings on the Class A1 and Class A2 notes, respectively, and upgraded its rating on the Class B Notes to A (low) (sf) from BBB (high) (sf).

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 10.6% and 13.3%, 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 on the Class A1 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 A1 Notes would be expected to fall to A (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A1 Notes would be expected to fall to A (high) (sf).

Class A1 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 AA (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (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)

Class A2 Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of BBB (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 BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

Class B Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Daniele Canestrari, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 October 2019

DBRS Ratings GmbH
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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: https://www.dbrsmorningstar.com/about/methodologies.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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