Morningstar DBRS Confirms Credit Ratings on Notes Issued by BPL Mortgages S.r.l., Series V

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the Class A-2012 Notes, Class A-2016 Notes, and Class A-2019 Notes (collectively and individually, the Class A Notes) issued by BPL Mortgages S.r.l., Series V (the Issuer) at AAA (sf).

The credit rating on each series of Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in October 2058.

The confirmations 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 January 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a securitisation of Italian residential mortgage loans originally granted by Banco Popolare – Società Cooperativa (BP) which, together with Banca Popolare di Milano, merged into Banco BPM S.p.A. (Banco BPM) in January 2017. The transaction originally closed in December 2012 and was subsequently restructured in October 2016 and again in March 2019. On both occasions, the seller repurchased the nonperforming loans from the Issuer and the Issuer purchased subsequent portfolios from BP (in October 2016) and Banco BPM (in March 2019), and a new series of Class A Notes was issued, ranking pari passu with the then-existing Class A Notes.

PORTFOLIO PERFORMANCE
As of the January 2024 payment date, loans 30 to 60 days and 60 to 90 days in arrears represented 1.0% and 0.3% of the outstanding portfolio balance, respectively, while loans more than 90 days in arrears represented 0.1%. Gross cumulative defaults amounted to 4.5% of the original portfolio balance as of the latest transaction restructuring in March 2019, with cumulative recoveries of 28.3% to date.

PORTFOLIO ASSUMPTIONS AND KEY RATING DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base-case PD and LGD assumptions to 15.8% and 18.8%, respectively.

CREDIT ENHANCEMENT
The subordination of the Class B Notes and overcollateralisation provides credit enhancement to the Class A Notes. As of the January 2024 payment date, credit enhancement to the Class A Notes increased to 48.7% from 40.2% at the time of the previous annual review 12 months ago.

The transaction benefits from an amortising cash reserve, maintained with Banco BPM, which is available to cover senior expenses and interest payments on the Class A Notes. The reserve has a target balance equal to 3.0% of the balance of the outstanding Class A Notes subject to a floor of EUR 40.0 million and, as of the January 2024 payment date, was at the floor level of EUR 40.0 million.

BNP Paribas, London branch (BNP London) acts as the account bank for the transaction. Based on Morningstar DBRS’ private credit rating on BNP London, the downgrade provisions outlined in the transaction documents, and other mitigating factors 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 Class A 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 defaults to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the term under which a long-term obligation has been issued.

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 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 the “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 Morningstar DBRS 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 BNP Paribas Succursale Italia, servicer reports provided by Banco BPM, and loan-level data provided by the European DataWarehouse GmbH and Banco BPM.

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

At the time of the first transaction restructuring in October 2016, Morningstar DBRS was supplied with third-party assessments. However, this did not impact the 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 rating process.

The last credit rating action on this transaction took place on 24 February 2023, when Morningstar DBRS upgraded the credit ratings on the Class A Notes to AAA (sf) from AA (sf).

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available at 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 15.8% and 18.8%, respectively.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (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 A (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 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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 24 December 2012

DBRS Ratings GmbH
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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://dbrs.morningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425148
-- European RMBS Insight Methodology (27 March 2023) and European RMBS Insight Model v6.0.2.0,
https://dbrs.morningstar.com/research/411634
-- European RMBS Insight: Italian Addendum (2 October 2023),
https:/dbrs.morningstar.com/research/421317
-- 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
-- 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

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 info-DBRS@morningstar.com.