DBRS Morningstar Upgrades Rating on BPL Mortgages S.r.l. (BPL8)

DBRS Ratings GmbH (DBRS Morningstar) upgraded its rating on the Class A Notes issued by BPL Mortgages S.r.l. (BPL8 or the Issuer) to A (high) (sf) from A (sf).

The rating addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in October 2064.

The Issuer also issued EUR 656,397,000 Class J Asset Backed Notes due 25 October 2064 (together with the originally issued EUR 1,800,000,000 Class A Notes, the notes), which DBRS Morningstar did not rate.

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

-- The portfolio performance, in terms of the level of delinquencies and defaults, as of the January 2023 payment date;
-- The one-year base case probability of default (PD) and default and recovery rates on the outstanding receivables;
-- The current available credit enhancement to the Class A Notes to cover the expected losses at the A (high) (sf) rating level.

BPL8 is a static cash flow securitisation collateralised by a portfolio of performing mortgage and nonmortgage loans to Italian micro companies and small and medium-size enterprises (SMEs). Banco BPM S.p.A. (Banco BPM), Banca Popolare di Milano S.c.a.r.l. (BPM), and Banco Popolare Società Cooperativa (BP) granted the loans. BPM and BP merged into Banco BPM on 1 January 2017.

PORTFOLIO PERFORMANCE
As of the January 2023 payment date, the overall portfolio consisted of 21,837 loans extended to 19,795 borrowers, with an aggregate par balance of EUR 1.77 billion. The portfolio is performing within DBRS Morningstar’s expectations. As of the January 2023 payment date, the loans in arrears for more than 90 days stood at 0.12%. The cumulative defaults represented 0.07% of the original balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar updated the portfolio one-year base case PD assumption to 4.9%. DBRS Morningstar updated its default rate and recovery assumptions to 44.6% and 54.2%, respectively, at the A (high) (sf) rating level.

CREDIT ENHANCEMENT
As of January 2023, the credit enhancement available to the Class A Notes had increased to 40.0% from 29.0%, driven by the amortisation of the transaction.

The transaction also benefits from a cash reserve, which will be available to cover expenses, senior fees, and interest payments on the Class A Notes. The target cash reserve is equal to 4.0% of the principal outstanding balance of the Class A Notes (floored at EUR 7.2 million). The total credit enhancement to the Class A Notes is provided by the overcollateralisation of the portfolio and the cash reserve.

Banco BPM covers several roles in the transaction such as the roles of servicer, collection account bank, and account bank. Banco BPM holds the servicer collection account, the collection account, and the cash reserve account. No backup servicer was appointed at transaction closing; however, Banca Finanziaria Internazionale S.p.A. acts as the backup servicer facilitator. Based on the account bank’s rating and the replacement provisions included in the transaction documents, DBRS Morningstar considers the counterparty risk to be consistent with the rating assigned to the Class A Notes, in accordance with its “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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating CLOs Backed by Loans to European SMEs” (10 June 2022); https://www.dbrsmorningstar.com/research/398252/rating-clos-backed-by-loans-to-european-smes.

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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/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 this rating include investor reports provided by Banca Finanziaria Internazionale S.p.A., and loan-by-loan data from 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 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.

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

The lead analyst responsibilities for this transaction have been transferred to Helvia Meana.

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 rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- PD Rates Used: Base-case PD of 4.9%, a 10% increase of the base case and a 20% increase of the base-case PD.
-- Recovery Rates Used: Base-case recovery rate of 54.2% at the A (high) (sf) rating level, a 10% and 20% decrease in the base-case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery-rate levels.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Class A Notes at A (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the ratings on the Class A Notes at 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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Helvia Meana, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 27 April 2022

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

-- Rating CLOs Backed by Loans to European SMEs (10 June 2022) and SME Diversity Model 2.6.0.2, https://www.dbrsmorningstar.com/research/398252/rating-clos-backed-by-loans-to-european-smes.
-- 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.
-- Cash Flow Assumptions for Corporate Credit Securitizations (7 February 2023), https://www.dbrsmorningstar.com/research/409499/cash-flow-assumptions-for-corporate-credit-securitizations.
-- Rating CLOs and CDOs of Large Corporate Credit (7 February 2023), https://www.dbrsmorningstar.com/research/409498/rating-clos-and-cdos-of-large-corporate-credit.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- European RMBS Insight Methodology (27 March 2023),
https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology
-- European RMBS Insight: Italian Addendum (29 September 2022),
https://www.dbrsmorningstar.com/research/403237/european-rmbs-insight-italian-addendum
-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/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.
-- 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].