Press Release

DBRS Morningstar Finalises Provisional Credit Ratings to Stresa Securitisation S.r.l.

RMBS

December 13, 2023

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional credit ratings to the residential mortgage-backed notes to be issued by Stresa Securitisation S.r.l. (the Issuer) as follows:

-- Class A at AA (sf)
-- Class B at A (high) (sf)
-- Class C at BBB (high) (sf)
-- Class D at BB (high) (sf)

The credit rating on the Class A notes addresses the timely payment of interest and the ultimate repayment of principal. The credit ratings on the Class B, Class C and Class D notes address the ultimate payment of interest and principal.

DBRS Morningstar does not rate the Class R and Class Z notes also expected to be issued in this transaction.

CREDIT RATING RATIONALE
The Issuer is a bankruptcy-remote special-purpose vehicle incorporated in the Republic of Italy. The Issuer will use the proceeds of the notes to re-securitise an existing portfolio of mostly prime and performing Italian owner-occupied (OO) mortgage loans secured over properties in Italy.

Meliorbanca S.p.A. (Meliorbanca; the originator) originated the mortgage loans included in this portfolio in 2006 and 2007. Meliorbanca merged into BPER Banca S.p.A. (BPER) in 2011. Following Commerzbank group's purchase, the portfolio was securitised under Borromeo Finance S.r.l. (Borromeo). Borromeo subsequently sold the portfolio to Stresa, a new special-purpose vehicle sponsored by the Fortress Investment Group LLC (Fortress) with two separate transfers in 2017 and 2019. The purpose of the newly issued notes is to repay the outstanding notes that Stresa issued to finance the portfolio purchases from Borromeo.

doNext S.p.A. (doNext) has been acting as the servicer for the portfolio since March 2011 and will continue to service the portfolio after the new notes issuance. DBRS Morningstar reviewed doValue S.p.A.'s (doNext's parent company) servicing practices.

The portfolio size as of October 2023 amounts to EUR 153 million, with a weighted average (WA) indexed current loan-to-value (CLTV) of 64.8% (calculated by DBRS Morningstar) and a WA seasoning of approximately 17 years. Roughly 13% of the portfolio (as per DBRS Morningstar calculations) is equal to or more than three months in arrears, including defaulted loans. The majority of the portfolio corresponds to floating-rate for life loans tracking six-month Euribor. Although these loans track the same index and reset every three months, the index calculation method is different depending on the product type. In most cases, the index is calculated as the average of the last two months before each quarterly reset. The WA coupon of the portfolio equals 5.5%.

Liquidity for the Class A notes will be supported by a liquidity reserve fund (LRF), which will be fully funded at closing and then amortise in line with the referred class of notes, which shall also feature a floor equal to 2% of the Class A notes' initial balance. The notes' terms and conditions allow interest payments other than on the Class A notes to be deferred if the available funds are insufficient. However, when the Class B notes are the most senior class of notes outstanding, deferral is not possible for the Class B notes.

Furthermore, Deutsche Bank AG/London Branch shall act as the Issuer Account Bank, and BPER Banca S.p.A. shall be appointed as the Collection Account Bank. While the former is privately rated by DBRS Morningstar, the latter is publicly rated with a long-term critical obligations rating (COR) of A (low) and a long-term issuer rating (IR) of BBB, both with a stable trend. Both entities meet the eligible ratings in structured finance transactions and are consistent with DBRS Morningstar's “Legal Criteria for European Structured Finance Transactions” methodology.

The notes expected to be issued in this transaction feature a coupon cap meaning that the coupon on the rated notes cannot exceed the maximum coupon established at closing. Payments made by the Issuer above the coupon cap are junior in the waterfall and for that reason DBRS Morningstar credit ratings do not address the payment of this additional amount.

Credit enhancement for the Class A notes is calculated at 19.25% and is provided by the subordination of the Class B to Class D notes and Class Z notes. Credit enhancement for the Class B notes is calculated at 15.50% and is provided by the subordination of the Class C to Class D notes and Class Z notes. Credit enhancement for the Class C notes is calculated at 11.75% and is provided by the subordination of the Class D and Class Z notes. Credit enhancement for the Class D notes is calculated at 8.50% and is provided by the Class Z notes.

DBRS Morningstar based its credit ratings primarily on a review of the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity
provisions.
-- The credit quality of the mortgage portfolio and the servicer’s ability to perform collection and resolution activities.
-- DBRS Morningstar estimated stress-level probability of default (PD), loss given default (LGD), and expected losses (EL) on the mortgage portfolio. DBRS Morningstar used the PD, LGD, and EL as inputs into its cash flow engine. DBRS Morningstar analysed the mortgage portfolio in accordance with its “European RMBS Insight Methodology” and “European RMBS Insight: Italian Addendum”.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the terms and conditions of the notes. DBRS Morningstar analysed the transaction structure using Intex DealMaker. DBRS Morningstar considered additional sensitivity scenarios of 0% CPR.
-- The exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
-- The sovereign rating of the Republic of Italy, rated BBB (high) with a Stable trend by DBRS Morningstar, as of the date of this press release.

DBRS Morningstar’s credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Interest Amounts and the related Class Balances.
DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the credit ratings on the applicable notes do not address the related Additional Coupon Cap Payments.
DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex DealMaker, considering the default rates at which the rated notes did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “European RMBS Insight Methodology” (27 March 2023), https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology.

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 principal methodology.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590.

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.

The sources of data and information used for this credit rating include those provided by Fortress, doNext and their
representatives. DBRS Morningstar was provided with loan-level data for the mortgage loans as of 31 October 2023 and historical performance data which included data on collections, arrears, prepayments and defaults. The data covered the period December 2017 to March 2023 and was reported on a monthly basis.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

These credit ratings concern newly issued financial instruments. These are the first DBRS Morningstar credit ratings on these financial instruments.

These are the first credit rating actions since the Initial Rating Date.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):

-- In respect of the Class A notes, a PD of 49.2% and an LGD of 24.6% corresponding to the AA (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class B notes, a PD of 45.1% and an LGD of 20.5% corresponding to the A (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class C notes, a PD of 38.2% and an LGD of 16.2% corresponding to the BBB (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class D notes, a PD of 29.8% and an LGD of 14.9% corresponding to the BB (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

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

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

Class C Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (sf)

Class D Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD, expected rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in PD, expected rating of B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of CCC (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of CCC (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://registers.esma.europa.eu/cerep-publication. 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 credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: André Soutinho, Senior Analyst
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 23 November 2023

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 credit 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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