DBRS Morningstar Confirms Rating on Valsabbina SPV 1 S.r.l. (RMBS)

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A Notes issued by Valsabbina SPV 1 S.r.l. (RMBS) (the Issuer).

The rating of the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in October 2052.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the April 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 AAA (sf) rating level.

The transaction is a securitisation of first-lien Italian residential mortgages originated by Banca Valsabbina S.C.p.A. (Banca Valsabbina) and Credito Veronese S.p.A. The Class A Notes were originally issued in January 2012. In January 2015, through an additional issuance of Class A Notes, a further portfolio of loans totalling EUR 151.5 million was purchased, and the reserve fund was increased to EUR 12.8 million from EUR 8.3 million. The additionally purchased loans were originated by Credito Veronese S.p.A., which Banca Valsabbina acquired in April 2011.

Again, in July 2018, an additional loan portfolio was purchased, funded through an additional issuance of Class A Notes, which increased the outstanding principal amount of the Class A Notes to EUR 366.6 million from EUR 37.7 million. The reserve fund was increased to EUR 11.0 million from EUR 2.7 million, with a target level of 3.0% of the outstanding balance of the Class A Notes, down from 5.0% prior to the 2018 restructuring. Additionally, the interest rate cap on the Class A Notes’ three-month Euribor reference rate was reduced to 3.0% from 8.0%. The introduction of a target amortisation formula for the Class A Notes, as well as the replacement of the backup servicer, Nuova Cassa di Risparmio di Ferrara S.p.A., by Cassa di Risparmio di Asti, was also part of the 2018 restructuring.

PORTFOLIO PERFORMANCE
As of the April 2022 payment date, loans two to three months in arrears represented 0.2% of the outstanding portfolio balance, down from 0.4% in April 2021. The 90+ days delinquency ratio was 0.2%, down from 0.4% in the same period and the cumulative default ratio remained unchanged at 0.0%.

PORTFOLIO ASSUMPTIONS AND KEY 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 6.1% and 10.6%, respectively.

CREDIT ENHANCEMENT
The credit enhancement to the Class A Notes consists of subordination of the Class B Notes, and equalled 37.9% as of the April 2022 payment date, up from 31.1% in April 2021.

The transaction benefits from the EUR 5.0 million reserve fund, covering senior expenses and interest payments on the Class A Notes. The reserve fund target amount is set at 3.0% of the outstanding balance of the Class A Notes and is permitted to amortise, subject to a floor of EUR 2.0 million.

BNP Paribas Securities Services SCA/Milan (BNP Milan) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating of BNP Milan, 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.

DBRS Morningstar analysed the transaction structure 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 rating 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 this rating include investor reports provided by Securitisation Services S.p.A., servicer reports provided by Banca Valsabbina S.C.p.A., 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 rating, 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 purpose of providing this rating 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 10 June 2021, when DBRS Morningstar upgraded the rating of the Class A Notes to AAA (sf) from AA (sf) and removed the Under Review with Positive Implications status of the rating.

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 rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (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 6.1% and 10.6%, 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 of 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 of 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 of the Class A Notes would still be expected to remain at AAA (sf).

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)

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: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 31 January 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.
-- 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.
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v 5.5.0.0,
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].