Morningstar DBRS Upgrades and Confirms Credit Ratings on CR VOLTERRA 2 SPV S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes issued by CR VOLTERRA 2 SPV S.r.l. (the Issuer):

-- Class A (2013) Notes confirmed at AAA (sf)
-- Class A (2016) Notes confirmed at AAA (sf)
-- Class M (2016) Notes upgraded to AAA (sf) from AA (sf)

The credit ratings on the Class A (2013) Notes, Class A (2016) Notes (together, the Class A Notes), and the Class M (2016) Notes (the Class M Notes, and together with the Class A Notes, the rated notes) address the timely payment of interest and the ultimate payment of principal by the final maturity date.

The credit rating actions 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 November 2023 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 rated notes to cover the expected losses at the AAA (sf) credit rating level.

CR VOLTERRA 2 SPV S.r.l. is a securitisation of Italian residential mortgage loans originated by Cassa di Risparmio di Volterra S.p.A. (CR Volterra). The transaction initially closed in July 2013, when the special-purpose vehicle issued the Class A (2013) Notes and Class J Notes. In July 2016, the transaction was restructured to include a further portfolio of first- and second-lien mortgage loans, financed through the issuance of two additional classes of notes, the Class A (2016) Notes and the Class M (2016) Notes. In the context of the restructuring, CR Volterra repurchased defaulted receivables and 60+-day arrears loans. The properties are concentrated in Tuscany, notably in the provinces of Pisa and Livorno. CR Volterra services the collateral portfolio, while Banca Finanziaria Internazionale S.p.A. acts as backup servicer facilitator.

On 12 April 2019, the servicing agreement was amended, increasing the limit for margin reductions on the collateral portfolio to 12% of the original portfolio balance, up from 6% previously. On 25 July 2023, the limit for cumulative repurchases was increased to 8% of the original portfolio balance, up from 5% previously.

The Class M Notes are subordinated to the Class A Notes at all times with respect to interest and principal payments. A cumulative default-based interest subordination trigger is in place with respect to the Class M Notes. If cumulative defaults rise above a certain threshold, interest on the Class M Notes will be deferred until after the principal on the Class A Notes has been repaid.

PORTFOLIO PERFORMANCE
As of the October 2023 cut-off date, loans that were one to two months and two to three months in arrears represented 0.9% and 0.5% of the outstanding collateral balance while loans more than three months delinquent represented 1.3%. Gross cumulative defaults amounted to 4.0% of the original portfolio balance, with cumulative recoveries of 41.0% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted an analysis of the current pool of receivables and updated its base case PD and LGD assumptions to 10.1% and 13.1%, respectively.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement to the rated notes. As of the November 2023 payment date, credit enhancements to the Class A and Class M Notes were 82.5% and 65.8%, respectively, up from 63.9% and 50.3%, respectively, as of the November 2022 payment date.

The transaction benefits from an amortising cash reserve, which provides liquidity support and is available to cover senior fees and interest payments on the Class A and Class M Notes (if no Class M interest subordination event has occurred). The cash reserve is currently at its floor of EUR 1.63 million, which accounts for 0.50% of the initial outstanding balance of the Class A and Class M Notes as of the restructuring date.

A commingling reserve is also in place and has currently reached its floor of EUR 1.63 million, or 0.50% of the initial outstanding balance of the Class A and Class M Notes as of the restructuring date. The commingling reserve is available to cover senior fees and interest payments on the Class A and Class M Notes in case of potential disruptions in the servicing activities.

BNP Paribas Succursale Italia acts as the account bank for the transaction. Based on Morningstar DBRS’ private credit rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the Notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS’ credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “Master European Structured Finance Surveillance Methodology” (11 December 2023), https://dbrs.morningstar.com/research/425148.

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

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

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://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include investor reports provided by Banca Finanziaria Internazionale S.p.A., servicer reports provided by CR Volterra, and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial credit ratings, Morningstar DBRS was supplied with third-party assessments. However, this did not affect the credit rating analysis.

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

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

The last credit rating action on this transaction took place on 17 February 2023, when Morningstar DBRS confirmed its credit ratings on the Class A Notes and Class M Notes at AAA (sf) and AA (sf), respectively.

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

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

-- Morningstar DBRS 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 10.1% and 13.1%, respectively.
-- The risk sensitivity overview below illustrates the credit 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 credit rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the credit rating on the Class A Notes would be expected to remain at AAA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

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

For further information on Morningstar DBRS 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 Morningstar DBRS 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: Pascale Kallas, Assistant Vice President
Credit Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Credit Rating Dates: Class A (2013) Notes – 31 July 2013; Class A (2016) and Class M (2016) Notes – 8 August 2016

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 these transactions can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (11 December 2023), https://dbrs.morningstar.com/research/425148
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- European RMBS Insight Methodology (27 March 2023) and European RMBS Insight Model version 6.0.2.0, https://dbrs.morningstar.com/research/411634
-- European RMBS Insight: Italian Addendum (2 October 2023),
https://dbrs.morningstar.com/research/421317
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].