Morningstar DBRS Upgrades and Confirms Credit Ratings on Three Popolare Bari RMBS Transactions

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on several classes of notes (together, the rated notes) issued in the context of three Popolare Bari RMBS transactions:

2017 Popolare Bari RMBS S.r.l. (2017 PB)
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (high) (sf)

2018 Popolare Bari RMBS S.r.l. (2018 PB)
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (high) (sf) from AA (low) (sf)

2019 Popolare Bari RMBS S.r.l. (2019 PB)
-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AA (high) (sf)
-- Class B Notes confirmed at A (high) (sf)

The credit ratings on all Class A Notes address the timely payment of interest and the ultimate payment of principal by the respective final maturity dates, except for the 2019 PB Class A2 Notes, where the credit rating addresses the ultimate payment of interest and the ultimate payment of principal by the final maturity date.

The credit ratings on all other classes of notes address the ultimate payment of interest and the ultimate payment of principal by the respective final maturity dates.

CREDIT RATING RATIONALE
The credit rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies, defaults, and losses, as of the respective latest payment dates;
-- Probability of default (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 their respective credit rating levels.

In August 2023, Banca Popolare di Bari S.C.p.A. was renamed BDM Banca S.P.A. (BdM). The transactions are securitisations of Italian first-lien residential mortgage loans originated and serviced by BdM and Cassa di Risparmio di Orvieto S.p.A. (CRO; part of the BdM group). BdM and CRO service the portfolios, with Zenith Service S.p.A. acting as backup servicer.

PORTFOLIO PERFORMANCE
The three portfolios are currently performing within Morningstar DBRS’ expectations. The 90+-day arrears and gross cumulative default ratios were as follows:
-- 2017 PB: 0.44% and 2.80%, respectively, as of the December 2023 cut-off date;
-- 2018 PB: 0.44% and 1.95%, respectively, as of the December 2023 cut-off date; and
-- 2019 PB: 0.45% and 1.33%, respectively, as of the October 2023 cut-off date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pools of receivables and updated its base case PD and LGD assumptions as follows:
-- 2017 PB: 11.1% and 10.5%, respectively;
-- 2018 PB: 9.6% and 10.4%, respectively; and
-- 2019 PB: 11.6% and 10.4%, respectively.

CREDIT ENHANCEMENT
Credit enhancement to the rated notes is provided by the overcollateralisation of the outstanding portfolio balances.

As of the latest payment dates, credit enhancement levels were as follows compared with Morningstar DBRS’ latest annual review in February 2023:
-- 2017 PB Class A Notes: 68.9%, up from 57.4%
-- 2017 PB Class B Notes: 47.6%, up from 39.1%
-- 2018 PB Class A Notes: 51.6%, up from 42.0%
-- 2018 PB Class B Notes: 37.8%, up from 30.2%
-- 2019 PB Class A1 Notes: 40.9%, up from 34.4%
-- 2019 PB Class A2 Notes: 35.9%, up from 30.0%
-- 2019 PB Class B Notes: 29.2%, up from 24.1%

The transactions benefit from cash reserves, available to cover senior fees and expenses, swap payments, and interest payments on the Class A Notes (only the Class A1 Notes for 2019 PB). Various performance-related triggers are in place to defer the interest on subordinated notes upon portfolio deterioration.

All reserves were at their target levels as of the latest payment dates.

BNP Paribas Succursale Italia acts as the account bank for the three transactions. Based on Morningstar DBRS’ private credit rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in each transaction’s 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.

The swap counterparty role is covered by the following entities:
-- For 2017 PB and 2018 PB: JP Morgan SE
-- For 2019 PB: NatWest Markets Plc

Morningstar DBRS did not give full credit to the swap agreements of 2017 PB and 2018 PB as the swap documentations are not consistent with Morningstar DBRS’ “Derivative Criteria for European Structured Finance Transactions,” given the credit ratings assigned to the notes. As for 2019 PB, Morningstar DBRS considers the risk arising from the swap counterparty to be consistent with the credit ratings assigned to the Notes, in accordance with the “Derivative 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 transactions 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 transactions’ structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

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

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

The credit rating assigned to the 2019 PB Class B Notes materially deviates from the credit rating implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stresses implied by the predictive model to be a significant factor in evaluating the credit rating. In this case, the credit rating addresses the ultimate payment of interest and principal on or before the final maturity date as defined in the transaction legal documents. The rationale for the material deviation is that Morningstar DBRS typically expects bonds rated in the AA (sf) category to be able to pay interest on a timely basis at the time they are the most senior bond outstanding.

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 transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating actions.

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 and additional information provided by BdM, 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 actions on these transactions took place on 17 February 2023, when:
-- For 2017 PB, Morningstar DBRS confirmed its credit rating on the Class A Notes at AAA (sf) and upgraded its credit rating on the Class B Notes to AA (high) (sf) from AA (low) (sf).
-- For 2018 PB, Morningstar DBRS confirmed its credit ratings on the Class A and Class B notes at AAA (sf) and AA (low) (sf), respectively.
-- For 2019 PB, Morningstar DBRS confirmed its credit ratings on the Class A1, Class A2, and Class B Notes at AAA (sf), AA (high) (sf), and A (high) (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 transactions 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 pools 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.
-- 2017 PB: 11.1% and 10.5%, respectively
-- 2018 PB: 9.6% and 10.4%, respectively
-- 2019 PB: 11.6% and 10.4%, 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. Taking the Class A Notes of 2017 PB as an example, 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. 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. 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).

2017 PB
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 B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of A (high) (sf)
-- 50% increase in PD, expected credit rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (sf)

2018 PB
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 B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of A (high) (sf)
-- 50% increase in PD, expected credit rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (sf)

2019 PB
Class A1 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 AA (high) (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 AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

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

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD, expected credit rating of A (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 A (high) sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (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
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
-- 2017 PB: 31 July 2017
-- 2018 PB: 14 June 2018
-- 2019 PB: 15 October 2019

DBRS Ratings GmbH
Neue Mainzer Straße 75
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
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://dbrs.morningstar.com/research/420754
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030
-- European RMBS Insight Methodology (27 March 2023) and European RMBS Insight Model v.6.0.2.0, https://dbrs.morningstar.com/research/411634
-- European RMBS Insight: Italian Addendum (2 October 2023), https://dbrs.morningstar.com/research/421317

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].