DBRS Morningstar Upgrades Ratings on Asti Group RMBS III S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the Class A1 and Class A2 Notes (together, the Class A notes) issued by Asti Group RMBS III S.r.l. (the Issuer) to AA (sf) from AA (low) (sf).

The ratings on the Class A notes address the timely payment of interest and the ultimate payment of principal on or before the final maturity date in December 2082.

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 September 2022 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- No revolving termination event; and
-- Current available credit enhancement to the Class A notes to cover the expected losses at the AA (sf) rating level.

The transaction is a revolving securitisation of Italian residential mortgages originated and serviced by Cassa di Risparmio di Asti S.p.A. (CR Asti), which originated 85.4% of the initial mortgage pool, and Cassa di Risparmio di Biella e Vercelli S.p.A. (BiverBanca), a previously wholly owned subsidiary of CR Asti, which originated 14.6% of the initial pool. Effective from November 2021, Biverbanca was merged by incorporation into CR Asti.

The transaction closed in December 2021 with an initial portfolio balance of EUR 611.8 million and includes a 28-month ramp-up period, scheduled to end on the March 2024 payment date, during which the Issuer can purchase additional receivables from CR Asti using principal collections and proceeds from the further issuance of Class A2 and Class J Notes, up to their respective maximum nominal amounts.

PORTFOLIO PERFORMANCE
As of September 2022, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.04%, 0.2%, and 0.1% of the outstanding principal balance, respectively, while loans more than 90 days delinquent represented 0.2%. There have not been any defaulted receivables to date.

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 9.2% and 28.5%, respectively.

CREDIT ENHANCEMENT
The subordination of the junior obligations, as well as excess spread available in the structure, provide credit enhancement to the Class A notes. As of the September 2022 payment date, credit enhancement to the Class A notes increased to 16.6% from 14.5% at the time of the initial rating 12 months ago, owing to the availability of excess spread to repay principal on the Class A1 Notes. This has driven the rating upgrade.

The transaction benefits from a cash reserve, funded at closing at EUR 7.8 million using a subordinated loan granted by the CR Asti. The reserve provides liquidity support and is available to cover senior expenses and interest payments on the Class A notes. The reserve is amortising with a target balance equal to 1.5% of the outstanding balance of the Class A notes, subject to a dynamic floor currently equal to EUR 5.3 million, and is increased during the ramp-up period via further draws on the subordinated loan. As of the September 2022 payment date, the reserve was at its target of EUR 9.7 million.

BNP Paribas Succursale Italia (BNP Paribas Italy) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on BNP Paribas Italy, 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 in the transaction, 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 effect 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (17 May 2022).

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (19 May 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.

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

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/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 KPMG Fides Servizi di Amministrazione S.p.A., servicer reports provided by CR Asti, 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 purpose 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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 assumptions for the remaining collateral pool are 9.2% and 28.5%, 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 on the Class A notes would be expected to decrease to A (high) (sf), ceteris paribus. If the PD increases by 50%, the ratings on the Class A notes would be expected to decrease to BBB (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the ratings on the Class A notes would be expected to decrease to BBB (low) (sf).

Class A1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: 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: 2 December 2021

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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 (19 May 2022),
https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology.
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v5.7.1.0,
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 .
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- 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.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- 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].