Press Release

DBRS Morningstar Upgrades Ratings on Siena PMI 2016 S.r.l. - Series 2-2019

Structured Credit

May 16, 2023

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the bonds issued by Siena PMI 2016 S.r.l. - Series 2-2019, as follows:

-- Class C Notes to AAA (sf) from AA (high) (sf)
-- Class D Notes to BBB (sf) from CCC (sf)

The rating on the Class C Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final legal maturity date in February 2060, in accordance with the transaction documentation. The rating on the Class D Notes addresses the ultimate payment of interest and the ultimate repayment of principal on or before the final legal maturity date. The Issuer also issued Class J Notes, which DBRS Morningstar does not rate.

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 February 2023 payment date;
-- The one-year base case probability of default (PD) and updated default and recovery rates on the remaining pool of receivables; and
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels.

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans to small and medium-size enterprises (SME), entrepreneurs, artisans, and producer families based in Italy. The loans were granted by Banca Monte dei Paschi di Siena SpA (BMPS or the servicer). A small percentage of the portfolio (totalling approximately 2.5% of the outstanding notional) was originated by Banca Antonveneta S.p.A., Banca Agricola Mantovana S.p.A., and Banca Toscana S.p.A. before they merged into BMPS.

PORTFOLIO PERFORMANCE
As of the February 2023 payment date, loans that were two to three months in arrears represented 0.2% of the outstanding portfolio balance, up from 0.0% as of February 2022. The 90+ days delinquency ratio remained at 0.2% of the outstanding portfolio balance and the cumulative default ratio remained at 0.0% in the same period.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of receivables and updated its base case default and recovery rate assumptions on the outstanding portfolio to 21.7% and 69.5%, respectively, at the B (sf) rating level. DBRS Morningstar updated its one-year base case PD to 4.3%.

CREDIT ENHANCEMENT
As of the February 2023 payment date, the credit enhancements to the Class C and Class D Notes stood at 70.3% and 30.2%, respectively, up from 49.8% and 20.4%, respectively, as of February 2022. The credit enhancements to the notes are provided by the subordination of the junior class of notes. The increase in the credit enhancements to the rated notes prompted the rating upgrades.

The transaction includes a cash reserve, which is available to cover senior fees and interest on the Class C Notes. The cash reserve amortises subject to the target level being equal to 2.0% of the outstanding balance of the Class C Notes. As of the February 2023 payment date, the cash reserve was at its target level of EUR 5.2 million.

BNP Paribas, Succursale Italia (BNP Italy) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating on BNP 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 rating assigned to the Class C 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 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.

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

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “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 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 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.

The last rating action on this transaction took place on 21 June 2022, when DBRS Morningstar upgraded its ratings on the Class B, Class C, and Class D Notes to AAA (sf), AA (high) (sf), and CCC (sf), respectively, from AA (high) (sf), A (low) (sf), and CC (sf), respectively. As of the February 2023 payment date, the Class A1, Class A2, and Class B Notes were fully repaid.

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):

-- PD Rates Used: base case PD of 4.3%, a 10% and 20% increase of the base case PD.
-- Recovery Rates Used: base case recovery rates of 69.5%, 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 on the Class C Notes at AAA (sf) and the Class D Notes at BBB (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 not have an impact on the aforementioned ratings either.

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.

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 Date: 25 June 2019

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: https://www.dbrsmorningstar.com/about/methodologies.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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