DBRS Morningstar Upgrades and Confirms Ratings on Two Berica ABS Transactions

DBRS Ratings GmbH (DBRS Morningstar) took rating actions on the bonds issued by Berica ABS 3 S.r.l. (Berica 3) and Berica ABS 4 S.r.l. (Berica 4), as follows:

Berica 3
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)

Berica 4
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class C Notes upgraded to AA (low) (sf) from A (high) (sf)

The ratings on the Class A Notes (Berica 3) and on the Class B Notes (Berica 3 and 4) address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date. The rating on the Class C Notes (Berica 4) addresses the timely payment of interest once most senior and the ultimate repayment of principal on or before the legal final maturity date.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies, defaults, and losses, as of the December 2021 payment dates;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels;

The transactions are securitisations of Italian first-lien residential mortgages originated and serviced by Banca Popolare di Vicenza S.p.A. (BPVi) and Banca Nuova SpA. Following BPVi’s administrative compulsory liquidation order from the Bank of Italy, Intesa SanPaolo SpA (Intesa SanPaolo) acquired BPVi, including the shareholdings in Banca Nuova SpA, and assumed all responsibilities in both transactions on 26 June 2017.

PORTFOLIO PERFORMANCE
Berica 3
As of the December 2021 payment date, loans two to three months in arrears represented 0.9% of the outstanding portfolio balance, down from 1.1% in December 2020. The 90+ days delinquency ratio remained at 1.5% in the same period and the cumulative default ratio increased to 5.2%.

Berica 4
As of the December 2021 payment date, loans two to three months in arrears represented 0.6% of the outstanding portfolio balance, unchanged from December 2020. The 90+ days delinquency ratio was 1.5%, down from 1.7% in the same period, and the cumulative default ratio increased to 5.5%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pools of receivables and updated its base case PD and LGD assumptions, as follows:
-- Berica 3 – base case PD and LGD assumptions of 8.9% and 10.3%, respectively.
-- Berica 4 – base case PD and LGD assumptions of 9.2% and 10.4%, respectively.

CREDIT ENHANCEMENT
Berica 3
As of the December 2021 payment date, credit enhancement to the Class B Notes was 69.4%, up from 58.3% as of December 2020. Credit enhancement is provided by the subordination of junior classes of notes.

The transaction benefits from a EUR 9.2 million reserve fund. The reserve fund can amortise and has a target balance at 3.0% of the rated notes, with a floor of 1.0% of their initial balance. The reserve fund target is not subject to performance triggers.

Berica 4
As of the December 2021 payment date, credit enhancement to the Class A Notes was 93.4%, up from 84.5% as of December 2020. Credit enhancement to the Class B Notes was 68.7%, up from 58.7%, and credit enhancement to the Class C Notes was 50.2%, up from 42.6% in the same period. Credit enhancement is provided by the subordination of junior classes of notes.

The transaction benefits from a EUR 8.5 million reserve fund. The reserve fund can amortise and has a target balance at 3.0% of the rated notes, with a floor of 1.0% of their initial balance. The reserve fund target is not subject to performance triggers.

HSBC Bank plc (HSBC) has acted as the account bank for Berica 3 since 6 March 2019, when it replaced Deutsche Bank AG, London branch. Based on DBRS Morningstar’s private rating on HSBC, 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 B Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Elavon Financial Services DAC, UK Branch (Elavon UK) acts as the account bank for Berica 4. Based on DBRS Morningstar’s private rating on Elavon UK, 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 Securities PLC (J.P. Morgan Securities) acts as the swap counterparty for both transactions while JPMorgan Chase Bank, N.A. (rated AA/R-1 (high) with Stable trends by DBRS Morningstar) acts as the swap guarantor. DBRS Morningstar's private rating on J.P. Morgan Securities is consistent with the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transactions structures in Intex DealMaker.

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 these transactions 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 transactions 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 Deutsche Bank S.p.A. (Berica 3) and U.S. Bank Global Corporate Trust Services (Berica 4), as well as servicer reports provided by Intesa Sanpaolo, 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 not 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 Berica 3 took place on 28 March 2022, when DBRS Morningstar discontinued its rating on the Class A Notes. Prior to this, on 1 April 2021, DBRS Morningstar confirmed the ratings on the Class A and Class B Notes at AAA (sf) and AA (high) (sf), respectively. The last rating action on Berica 4 took place on 1 April 2021, when DBRS Morningstar confirmed the ratings on the Class A and Class C Notes at AAA (sf) and A (high) (sf), respectively, and upgraded the rating on the Class B Notes to AA (high) (sf) from AA (sf).

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

To assess the impact of changing the transactions 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 both pools 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 Berica 3 are 8.9% and 10.3%, respectively.
-- The base case PD and LGD of the current pool of loans for Berica 4 are 9.2% and 10.4%, 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, in Berica 3, if the LGD increases by 50%, the rating of the Class B Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class B 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 of the Class B Notes would still be expected to remain at AAA (sf).

Berica 3
Class B 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)

Berica 4
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 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 C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (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 AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://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: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President

Initial Rating Dates:
Berica 3: 16 June 2014
Berica 4: 10 July 2015

DBRS Ratings GmbH
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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: http://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.
-- 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 (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.
-- 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 (28 March 2022) and European RMBS Insight Model v 5.4.3.2,
https://www.dbrsmorningstar.com/research/394309/european-rmbs-insight-methodology.
-- European RMBS Insight: Italian Addendum (10 December 2021), https://www.dbrsmorningstar.com/research/389473/european-rmbs-insight-italian-addendum,
-- 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].