DBRS Morningstar Assigns Ratings to Asti Group RMBS III S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) assigned the following ratings to the Class A1 Notes and Class A2 Notes (together, the Rated Notes) issued by Asti Group RMBS III S.r.l. (the Issuer):

-- Class A1 Notes at AA (low) (sf)
-- Class A2 Notes at AA (low) (sf)

The Class A1 Notes are issued for EUR 523,100,000. The Class A2 Notes and the Class J Notes (not rated by DBRS Morningstar) are issued on a partly paid basis with an initial paid-up (or instalment) amount of EUR 100,000 for the Class A2 Notes and EUR 88,584,000 for the Class J Notes.

The ratings assigned to the Rated Notes address the timely payment of interest and the ultimate payment of principal on or before the final maturity date in December 2082 up to the nominal amount of the Class A1 Notes and up to the paid-up amount of the Class A2 Notes.

During a two-year plus four-month revolving (or ramp-up) period, the Issuer can use the Class A2 principal collections (i.e., the principal collections corresponding to the Class A2 proportion of the Rated Notes) along with proceeds from increasing the Class A2 and Class J Notes paid-up amounts to purchase subsequent portfolios, subject to portfolio limits and eligibility criteria. Therefore, the Class A2 and Class J Notes are allowed to increase up to their nominal amounts of EUR 759,500,000 for the Class A2 Notes and EUR 217,400,000 for the Class J Notes.

The Issuer funded the purchase of the initial portfolio via the issuance of the Class A1 Notes at their nominal amount as well as the Class A2 and Class J Notes at their initial instalments.

At closing, the Rated Notes benefit from a credit enhancement of 14.5% (calculated as a percentage of the portfolio).

The transaction structure benefits from a cash reserve, fully funded initially at EUR 7,848,000 through a subordinated loan granted by Cassa di Risparmio di Asti S.p.A. (Asti or the Seller). The cash reserve, which provides liquidity support, is equal to 1.5% of the outstanding balance of the Rated Notes and, after the revolving period, will have a floor of 0.75% of the sum of (1) the initial balance of the Class A1 Notes and (2) the highest balance of the Class A2 Notes reached during the ramp-up period. The cash reserve can be used to pay senior fees, expenses, and interest on the Rated Notes.

The initial portfolio consists of prime Italian residential mortgage loans originated by Asti (85.4% of the pool), and Cassa di Risparmio di Biella e Vercelli - BiverBanca S.p.A. (Biverbanca) (14.6% of the pool) which was merged by incorporation into Asti on 6 November 2021. Asti is the Servicer of the pool while Banca Valsabbina S.C.p.A. was appointed as the Backup Servicer.

As of 31 October 2021, the initial portfolio consisted of 6,560 mortgage loans granted to 6,531 borrowers. The total current balance of the initial portfolio is EUR 612 million and the average loan balance is EUR 93,260. The weighted-average (WA) seasoning of the portfolio is 3.2 years with a WA residual maturity of 19.4 years. The WA loan-to-value of the portfolio (calculated on the unindexed property value) is 57.3%. The portfolio is mainly distributed in the northern Italian regions of Piedmont (59.8% by loan balance) and Lombardy (35.6%).

The portfolio is split among floating-rate-for-life loans (24.3% of the loan balance), fixed-rate-for-life loans (8.7%) and optional loans (67.0%). The optional loans, which currently comprise 52.5% fixed-rate loans and 14.5% floating-rate loans, can each switch to a different interest rate type every 3 or 10 years. The majority of floating-rate loans (99.5% of the floating-rate pool) are indexed to six-month Euribor.

There are no swap transactions in place. Consequently, the structure is unhedged against interest rate and basis risk arising from the mismatch between assets (that currently pay a fixed rate for 61.3% of the pool, which could potentially increase to 75.7% due to the options granted to the relevant borrowers) and liabilities (indexed to three-month Euribor). However, the cap rate applied to the Rated Notes (3.5%) partially mitigates the interest rate risk in rising interest rates scenarios.

The transaction account bank is BNP Paribas Securities Services, Milan branch. Based on DBRS Morningstar’s private rating on the account bank and the replacement provisions included in the transaction documents, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar based its ratings primarily on the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage portfolio and the ability of the Servicer to perform collection and resolution activities. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss outputs on the mortgage portfolio, which DBRS Morningstar uses as inputs into its cash flow tool. DBRS Morningstar analysed the mortgage portfolio in accordance with its “European RMBS Insight Methodology” and “European RMBS Insight: Italian Addendum".
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the terms and conditions of the notes. DBRS Morningstar analysed the transaction structure using Intex Dealmaker.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
-- The sovereign rating of the Republic of Italy, rated BBB (high) with a Stable trend by DBRS Morningstar, as of the date of this press release.

DBRS Morningstar also ran additional cash flow sensitivity scenarios to test a shorter default timing distribution to assign its ratings.

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 incorporated an increase in PD for self-employed borrowers in its analysis and conducted additional analysis to determine the transaction benefits from sufficient liquidity support in case there is a high level of payment moratoriums in the portfolio. In addition, DBRS Morningstar assumed a moderate decline in residential property prices.

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 methodologies applicable to the ratings are the “European RMBS Insight Methodology” (3 June 2021) and the “European RMBS Insight: Italian Addendum” (21 December 2020).

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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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 historical performance (static pool defaults and recoveries data from 2009 to 2021, dynamic delinquencies data from 2009 to 2021, and dynamic prepayments data from 2015 to 2021) and loan-level data as at 31 October 2021 provided by UniCredit Bank AG on behalf of the originators.

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

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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on these financial instruments.

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

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

In respect of the Rated Notes, the PD and LGD at the AA (low) (sf) stress scenario of 29.63% and 40.09%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS Morningstar concludes the following impact on the Class A1 Notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).

DBRS Morningstar concludes the following impact on the Class A2 Notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to 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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 2 December 2021

DBRS Ratings GmbH, Sucursal en España
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DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- European RMBS Insight Methodology (3 June 2021) and European RMBS Insight Model v. 5.3.0.2, 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 Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/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].