DBRS Morningstar Upgrades Ratings on Notes Issued by BPL Mortgages S.r.l., Series V

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the Class A-2012 Notes, Class A-2016 Notes, and Class A-2019 Notes (collectively and individually, the Class A Notes) issued by BPL Mortgages S.r.l., Series V (the Issuer) to AA (sf) from A (high) (sf).

The ratings on each series of Class A Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in October 2058.

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 January 2022 payment date;
-- 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 their AA (sf) rating level;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction is a securitisation of Italian residential mortgage loans granted originally by Banco Popolare – Società Cooperativa (BP) which, together with Banca Popolare di Milano, merged into Banco BPM S.p.A. (Banco BPM) in January 2017. The transaction closed originally in December 2012 and was subsequently restructured in October 2016 and again in March 2019. On both occasions, the seller repurchased the nonperforming loans from the Issuer, the Issuer purchased subsequent portfolios from BP (in October 2016) and Banco BPM (in March 2019), and new series of Class A Notes were issued, ranking pari passu with the then-existing Class A Notes.

PORTFOLIO PERFORMANCE
As of the January 2022 payment date, loans 30 to 60 days and 60 to 90 days in arrears represented 0.4% and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days in arrears represented 0.1%. Gross cumulative defaults amounted to 3.3% of the original portfolio balance as of the latest restructuring date in March 2019, with cumulative recoveries of 15.5% to date.

PORTFOLIO ASSUMPTIONS AND KEY RATING 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 16.3% and 20.4%, respectively.

CREDIT ENHANCEMENT
The subordination of the Class B Notes and overcollateralisation provides credit enhancement to the Class A Notes. As of the January 2022 payment date, credit enhancement to the Class A Notes increased to 33.4% from 28.5% at the time of the previous annual review 12 months ago.

The transaction benefits from an amortising cash reserve, maintained with Banco BPM, which is available to cover senior expenses and interest payments on the Class A Notes. The reserve has a target balance equal to 3.0% of the outstanding Class A Notes balance subject to a floor of EUR 40.0 million and, as of the January 2022 payment date, was at its target of EUR 53.9 million.

BNP Paribas Securities Services, London branch (BNP London) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on BNP London, 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 ratings assigned to the Class A Notes, as described in DBRS Morningstar's "Legal 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 residential mortgage-backed securities (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 high levels of payment holidays in the portfolio. As of 31 December 2021, 1.0% of the portfolio was under payment moratoria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 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/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update 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 2022).

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 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 BNP Paribas Securities Services, Milan branch; servicer reports provided by Banco BPM; and loan-level data provided by the European DataWarehouse GmbH and Banco BPM.

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

At the time of the first transaction restructuring in October 2016, 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 24 February 2021, when DBRS Morningstar confirmed the ratings on all Class A Notes at A (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 16.3% and 20.4%, 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 ratings of the Class A Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the ratings of the Class A Notes would be expected to decrease to BBB (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the ratings of the Class A Notes would be expected to decrease to BBB (high) (sf), ceteris paribus.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (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)

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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 24 December 2012

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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 2022),
https://www.dbrsmorningstar.com/research/392000/master-european-structured-finance-surveillance-methodology.
-- European RMBS Insight Methodology (3 June 2021) and European RMBS Insight Model v5.4.2.0,
https://www.dbrsmorningstar.com/research/379557/european-rmbs-insight-methodology.
-- European RMBS Insight: Italian Addendum (10 December 2021),
https://www.dbrsmorningstar.com/research/389473/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.
-- 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 these credits or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].