DBRS Morningstar Confirms Ratings Across Six Italian RMBS Transactions

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on several classes of notes issued in the context of six Italian RMBS transactions, as follows:

Credico Finance 9 S.r.l. (CF9):
-- Class A Notes at AAA (sf)

Credico Finance 10 S.r.l. (CF10):
-- Class A Notes at AAA (sf)

Credico Finance 16 S.r.l. (CF16):
-- Class A Notes at AAA (sf)

Mars 2600 S.r.l. Series 5 (Mars 2600-5):
-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)

MCC RMBS S.r.l. (MCC):
-- Class A Notes at AAA (sf)

Grecale RMBS 2015 S.r.l. (Grecale 2015):
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)
-- Class C Notes at AA (high) (sf)

The ratings on the Class B and Class C Notes of Grecale 2015 address the ultimate payment of interest and the ultimate payment of principal by the respective final maturity dates, while all the other ratings address the timely payment of interest and the ultimate payment of principal by 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 respective latest payment dates;
-- 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.

CF9, CF10, and CF16 are securitisations of Italian residential mortgage loans originated and serviced by multiple cooperative and independent Italian banks (BCCs or Banche di Credito Cooperativo) belonging to ICCREA’s network.

The transactions are structured with several combined (principal plus interest) waterfalls, one for each BCC, where each portfolio supports a portion of the Class A Notes on the basis of the respective contribution to the aggregate portfolio. Upon breach of certain conditions (cross-collateral events), the waterfalls will collapse into a unique combined waterfall. There are also other mechanisms in place for the purpose of each portfolio supporting the others, if certain conditions are met (detrimental event and disequilibrium event).

Mars 2600 S.r.l. Series 5 is a securitisation of Italian first-lien residential mortgage loans, originated and serviced by Banca Sella S.p.A. (Banca Sella). The transaction’s servicing agreement was amended in November 2015 in order to allow more flexibility to the servicer with regard to interest rate renegotiations and maturity extensions.

MCC RMBS S.r.l. is a securitisation of Italian first-lien residential mortgage loans originated and serviced by Banca del Mezzogiorno – Mediocredito Centrale S.p.A. (BdM), a bank entirely controlled by Invitalia S.p.A. (the National Agency for Inward Investment and Economic Development, owned by the Italian Ministry of Economy). Banca Finanziaria Internazionale S.p.A. covers the role of backup servicer for the transaction.

Grecale RMBS 2015 S.r.l. is a securitisation of Italian first-lien residential mortgage loans originated by Unipol Banca S.p.A. (Unipol Banca) and Banca SAI S.p.A. In November 2019, BPER completed the acquisition of Unipol Banca, taking over the servicing activities of the collateral portfolio. Zenith Service S.p.A. currently covers the role of backup servicer for the transaction.

PORTFOLIO PERFORMANCE
The six portfolios are performing within DBRS Morningstar’s initial expectations. Delinquencies are low, with the 60 to 90 days and 90+ days arrear ratios as of the latest respective cut-off date as follows:
-- CF9: 0.18% and 0.62%, respectively
-- CF10: 0.14% and 0.57%, respectively
-- CF16: 0.12% and 0.20%, respectively
-- Mars 2600-5: 0.24% and 0.69%, respectively
-- MCC: 0.14% and 0.27%, respectively
-- Grecale 2015: 0.54% and 1.95%, respectively

The most recent gross cumulative default ratios are listed below, as of the latest portfolio cut-off date for each transaction:
-- CF9: 0.69%, stable from the latest annual review of the transaction
-- CF10: 0.51%, stable from the latest annual review of the transaction
-- CF16: 0.12%, stable from the latest annual review of the transaction
-- Mars 2600-5: 1.70%, up from 1.60% as of the latest annual review of the transaction
-- MCC: 1.58%, up from 1.10% as of the latest annual review of the transaction
-- Grecale 2015: 1.71%, up from 1.40% as of the latest annual review of the transaction

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 as follows:
-- CF9: 6.43% and 10.66%, respectively
-- CF10: 6.78% and 10.85%, respectively
-- CF16: 7.72% and 10.76%, respectively
-- Mars 2600-5: 6.46% and 10.36%, respectively
-- MCC: 8.79% and 10.34%, respectively
-- Grecale 2015: 8.92% and 11.20%, respectively

The higher PD and LGD assumptions compared to the last annual review of each transaction 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 across all transactions (for CF9 and CF 10, it also 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 latest payment date for each transactions, credit enhancement levels were as follows:
-- Class A Notes of CF9: 71.1%, up from 65.5% as of the latest annual review of the transaction
-- Class A Notes of CF10: 84.7%, up from 76.5% as of the latest annual review of the transaction
-- Class A Notes of CF16: 33.7%, up from 27.8% as of the latest annual review of the transaction
-- Class A1 and Class A2 Notes of Mars 2600-5: 87.0%, up from 71.7% as of the latest annual review of the transaction
-- Class A Notes of MCC: 60.9%, up from 53.7% as of the latest annual review of the transaction
-- Class A Notes of Grecale 2015: 76.6%, up from 64.7% as of the latest annual review of the transaction
-- Class B Notes of Grecale 2015: 57.4%, up from 48.0% as of the latest annual review of the transaction
-- Class C Notes of Grecale 2015: 47.8%, up from 39.6% as of the latest annual review of the transaction

CF9, CF10, and CF16 benefit from cash reserves (composed by a single reserve for each BCC), available to cover senior expenses, fees, and interest payments on the Class A Notes (also swap payments for CF9). Additionally, the reserves are also available to provide credit support to the rated notes, for an amount equal to the difference between 4% of the outstanding Class A Notes and the cash reserve for CF9 and CF10, and up to 80% of the cash reserve target amount for CF16.

For CF9, the cash reserve is amortising and is reduced by 1.0% annually in January each year (in case no drawings have been made). As of the latest payment date, the cash reserve was EUR 26.3 million. For CF10, the cash reserve is nonamortising and since closing it has remained at its target level of EUR 79.2 million. For CF16, the cash reserve is currently at its floor level of EUR 16,9 million.

Mars 2600-5, MCC and Grecale 2015 also benefit from amortising cash reserves, available to cover senior expenses, fees, and interest payments on the Class A Notes (also swap payments for Grecale 2015). All reserves are currently at their target and floor levels equal to EUR 2.2 million, EUR 5.0 million and EUR 5.4 million, respectively.

BNP Paribas Securities Services, Milan branch acts as the account bank across all transactions. Based on DBRS Morningstar’s private rating on the account bank, the downgrade provisions outlined in the transactions’ documents, and structural mitigants inherent in the transaction structures, 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.

J.P. Morgan Securities plc is the swap counterparty for CF9 and Grecale 2015.

For CF9, the swap documents do not include DBRS Morningstar collateral posting thresholds; however, DBRS Morningstar’s private rating of the swap counterparty is consistent with the first and second rating thresholds, as defined in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

For Grecale 2015, the swap documents are only partially compliant with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology; however, the DBRS Morningstar private rating of the swap counterparty is consistent with both the first and second rating thresholds, as defined in the same methodology.

The swap counterparty’s obligations under the swap agreements are guaranteed by JPMorgan Chase Bank N.A.

DBRS Morningstar analysed the transactions’ structures 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 these transactions, 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 transactions benefit from sufficient liquidity support to withstand potentially high levels of payment holidays in the portfolios.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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 transactions in accordance with the principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action of each transaction.

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 DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report:
https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include investor reports provided by Accounting Partners S.r.l., Banca Finanziaria Internazionale S.p.A. and BNP Paribas Securities Services, Milan Branch, servicer reports provided by ICCREA, Banca Sella, BdM and BPER, 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 for CF16, MCC and Grecale 2015 only. 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 these transactions were as follows:
-- CF9, CF10: 19 March 2021, when DBRS Morningstar confirmed its ratings on the Class A Notes of each transaction at AAA (sf)
-- CF16: 6 November 2020, when DBRS Morningstar confirmed its ratings on the Class A Notes at AAA (sf)
-- Mars 2600-5: 30 October 2020, when DBRS Morningstar confirmed its ratings on the Class A1 and Class A2 Notes at AAA (sf)
-- MCC: 6 November 2020, when DBRS Morningstar confirmed its ratings on the Class A Notes at AAA (sf)
-- Grecale 2015: 13 November 2020, when DBRS Morningstar confirmed its ratings on the Class A, Class B and Class C Notes at AAA (sf), AA (high) (sf) and AA (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 Issuers are as follows:

-- CF9: 6.43% and 10.66%, respectively
-- CF10: 6.78% and 10.85%, respectively
-- CF16: 7.72% and 10.76%, respectively
-- Mars 2600-5: 6.46% and 10.36%, respectively
-- MCC: 8.79% and 10.34%, respectively
-- Grecale 2015: 8.92% and 11.20%, 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 an 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)

CF16

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)

Mars 2600-5

Class A1 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 A2 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)

MCC

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)

Grecale 2015

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

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (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 AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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:
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 Dates:
-- CF9: 11 July 2011
-- CF10: 25 April 2012
-- CF16: 14 November 2016
-- Mars 2600-5: 28 May 2014
-- MCC: 7 November 2016
-- Grecale 2015: 27 November 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: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- European RMBS Insight Methodology (3 June 2021) European RMBS Insight Model v5.2.0.0, https://www.dbrsmorningstar.com/research/379557/european-rmbs-insight-methodology.
-- European RMBS Insight: Italian Addendum (21 December 2020), https://www.dbrsmorningstar.com/research/371597/european-rmbs-insight-italian-addendum.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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].