Morningstar DBRS Upgrades Credit Rating on BPL Mortgages S.r.l. (BPL8)

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit rating on the Class A Notes issued by BPL Mortgages S.r.l. (BPL8 or the Issuer) to AA (low) (sf) from A (high) (sf).

The credit rating addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in October 2064.

The Issuer also issued EUR 656,397,000 Class J Asset Backed Notes due 25 October 2064 (together with the originally issued EUR 1,800,000,000 Class A Notes, the notes), which Morningstar DBRS did not rate.

The upgrade follows an annual review of the transaction and is based on the following analytical considerations:

-- The portfolio performance, in terms of the level of delinquencies and defaults, as of the January 2024 payment date;
-- The one-year base case probability of default (PD) and default and recovery rates on the outstanding receivables;
-- The current available credit enhancement to the Class A Notes to cover the expected losses at the AA (low) (sf) credit rating level.

BPL8 is a static cash flow securitisation collateralised by a portfolio of performing mortgage and nonmortgage loans to Italian micro companies and small and medium-size enterprises (SMEs). Banco BPM S.p.A. (Banco BPM), Banca Popolare di Milano S.c.a.r.l. (BPM), and Banco Popolare Società Cooperativa (BP) granted the loans. BPM and BP merged into Banco BPM on 1 January 2017.

PORTFOLIO PERFORMANCE
As of the January 2024 payment date, the overall portfolio consisted of 14,631 loans with an aggregate par balance of EUR 1.29 billion. The portfolio is performing within Morningstar DBRS' expectations. As of the January 2024 payment date, the loans in arrears for more than 90 days trended up to 0.27% from 0.12% as of the last annual review. The cumulative defaults represented 0.19% of the original balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated the portfolio one-year base case PD assumption to 5.1%. Morningstar DBRS updated its default rate and recovery assumptions to 50.1% and 52.0%, respectively, at the AA (low) (sf) credit rating level.

CREDIT ENHANCEMENT
As of January 2024, the credit enhancement available to the Class A Notes had increased to 53.1% from 40.0% as of the last annual review, driven by the amortisation of the transaction.

The transaction also benefits from a cash reserve, which is available to cover expenses, senior fees, and interest payments on the Class A Notes. The target balance of the cash reserve is equal to 4.0% of the principal outstanding balance of the Class A Notes (floored at EUR 7.2 million). The total credit enhancement to the Class A Notes is provided by the overcollateralisation of the portfolio and the cash reserve.

Banco BPM covers several roles in the transaction, such as the roles of servicer, collection account bank, and account bank. Banco BPM holds the servicer collection account, the collection account, and the cash reserve account. No backup servicer was appointed at transaction closing; however, Banca Finanziaria Internazionale S.p.A. acts as the backup servicer facilitator. Based on the account bank's credit rating and the replacement provisions included in the transaction documents, Morningstar DBRS considers the counterparty risk to be consistent with the credit rating assigned to the Class A Notes, in accordance with its "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit rating on the notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS' credit rating does 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 its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: "Rating CLOs Backed by Loans to European SMEs" (23 February 2024), https://dbrs.morningstar.com/research/428543.

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 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 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 this credit rating include investor reports provided by Banca Finanziaria Internazionale S.p.A., and loan-by-loan data from 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 rating, Morningstar DBRS was supplied with third-party assessments. However, this did not impact the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing this credit rating 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 27 April 2023, when Morningstar DBRS upgraded its credit rating on the Class A Notes to A (high) (sf) from A (sf).

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available at https://dbrs.morningstar.com/.

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

-- PD Rates Used: Base-case PD of 5.1%, a 10% increase of the base case and a 20% increase of the base-case PD.
-- Recovery Rates Used: Base-case recovery rate of 52.0% at the AA (low) (sf) credit rating level, 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.

Morningstar DBRS 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 of the Class A Notes at AA (low) (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 also lead to a confirmation of the credit ratings on the Class A Notes at AA (low) (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.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Helvia Meana, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 27 April 2022

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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Rating CLOs Backed by Loans to European SMEs (23 February 2024) and SME Diversity Model version 2.6.1.4, https://dbrs.morningstar.com/research/428543
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024), https://dbrs.morningstar.com/research/428544
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- 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 (25 March 2024),
https://dbrs.morningstar.com/research/430103
-- 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 https://dbrs.morningstar.com/ or contact us at [email protected].