DBRS Morningstar Upgrades and Confirms Ratings on Civitas SPV S.r.l. - Series 2017-1 Following Amendment

DBRS Ratings GmbH (DBRS Morningstar) upgraded and confirmed its ratings on the notes issued by Civitas SPV S.r.l. - Series 2017-1 (the Issuer) following a transaction amendment (the amendment) as follows:

-- Class A1 notes confirmed at AAA (sf)
-- Class A2 notes confirmed at AAA (sf)
-- Class B notes upgraded to AAA (sf) from BBB (low) (sf)

The ratings on the Class A1, Class A2, and Class B notes (collectively, the senior notes) address the timely payment of interest and the ultimate repayment of principal by the legal maturity date in October 2070.

The rating actions are based on the following analytical considerations:
-- An amendment to the transaction executed on 12 October 2022;
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the July 2022 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the senior notes to cover the expected losses at their respective rating levels.

AMENDMENT
On 12 October 2022, the Issuer entered into an amendment to the transaction that will be effective on the day immediately following the payment date in October 2022. The amendment entails the following changes:
-- Ranking the Class B notes pro rata and pari passu with the Class A1 and Class A2 notes; and
-- Lowering the margin on the Class B notes to 50 basis points (bps) from 150 bps.

The changes will be applied from the day immediately following the payment date falling on 28 October 2022.

The transaction is a securitisation of first-lien Italian residential mortgages originated and serviced by Banca di Cividale S.p.A. The transaction closed in July 2017 and incorporated a three-year ramp-up period, which ended in April 2020 when the notes were drawn up to the maximum amount permitted by the transaction. Since then, the Class A1 and Class A2 notes have amortised on a pro rata basis and stood at a class factor of 0.55 as of the July 2022 payment date.

PORTFOLIO PERFORMANCE
As of the July 2022 payment date, loans that were two to three months delinquent represented 0.1% of the outstanding portfolio balance while loans more than three months delinquent represented 0.4%. As of the July 2022 payment date, the gross cumulative default ratio was 0.6%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the current portfolio of receivables and updated its PD and LGD assumptions to 14.0% and 15.4%, respectively.

CREDIT ENHANCEMENT
The junior obligations provide subordination to the senior notes. As of the July 2022 payment date, credit enhancement to the Class A1, Class A2, and Class B notes was 34.9%, 34.9%, and 21.7%, respectively, up from 33.9%, 33.9%, and 21.1%, respectively, at the last annual review. Following the amendment, the credit enhancement on the senior notes will be ranked pro rata and pari passu with only the unrated Class C notes and potential overcollateralisation providing credit enhancement.

The transaction benefits from an amortising cash reserve, which is available to cover senior fees, expenses, and interest due on the senior notes. The cash reserve has a target equal to 2.5% of the aggregate senior notes’ balance. As of the July 2022 payment date, the cash reserve stood at its target of EUR 8.9 million.

BNP Paribas, Italian Branch (BNP Italy) acts as the account bank for the transaction. Based on DBRS Morningstar’s AA reference rating on its parent company BNP Paribas SA, which is one notch below its DBRS Morningstar Long-Term COR of AA (high), 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 senior notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact on the credit analysis.

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/396929 (17 May 2022).

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings are the “Master European Structured Finance Surveillance Methodology” (19 May 2022), the “European RMBS Insight Methodology” (28 March 2022), and the “European RMBS Insight: Italian Addendum” (29 September 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 methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

In the context of the amendment, DBRS Morningstar conducted a review of the amended transaction documents including the master amendment agreement, rated notes condition, and the junior notes condition. A review of any other transaction legal documents was not conducted as these 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/401817/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 Securitisation Services S.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 ratings, 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 13 June 2022, when DBRS Morningstar confirmed the ratings on the Class A1, Class A2, and Class B notes at AAA (sf), AAA (sf), and BBB (low) (sf), respectively.

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

Sensitivity Analysis: 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 14.0% and 15.4%, 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 rating of the senior 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 senior notes would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the senior notes would be expected to fall to A (high) (sf).

Senior 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 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 (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 A (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: Preben Cornelius Overas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 19 July 2017

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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions
-- Master European Structured Finance Surveillance Methodology (19 May 2022),
https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v5.7.0.1, https://www.dbrsmorningstar.com/research/394309/european-rmbs-insight-methodology.
-- European RMBS Insight: Italian Addendum (29 September 2022), https://www.dbrsmorningstar.com/research/403237/european-rmbs-insight-italian-addendum.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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].