Morningstar DBRS Upgrades and Confirms Credit Ratings on Siena PMI 2016 S.r.l. - Series 2-2019

DBRS Ratings GmbH (Morningstar DBRS) upgraded and confirmed its credit ratings on the bonds issued by Siena PMI 2016 S.r.l. - Series 2-2019 (the Issuer), as follows:

-- Class C Notes confirmed at AAA (sf)
-- Class D Notes upgraded to AA (high) (sf) from BBB (sf)

The credit rating on the Class C Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final legal maturity date in February 2060, in accordance with the transaction documentation. The credit rating on the Class D Notes addresses the ultimate payment of interest and the ultimate repayment of principal on or before the final legal maturity date. The Issuer also issued Class J Notes, which Morningstar DBRS does not rate.

The 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 February 2024 payment date;
-- The one-year base-case probability of default (PD) and updated default and recovery rates on the remaining pool of receivables; and
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective credit rating levels.

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans to small and medium-size enterprises (SME), entrepreneurs, artisans, and producer families based in Italy. The loans were granted by Banca Monte dei Paschi di Siena SpA (BMPS or the servicer). A small percentage of the portfolio (totalling approximately 2.5% of the outstanding notional) was originated by Banca Antonveneta S.p.A., Banca Agricola Mantovana S.p.A., and Banca Toscana S.p.A. before they merged into BMPS.

PORTFOLIO PERFORMANCE
As of the February 2024 payment date, loans that were two to three months in arrears represented 0.1% of the outstanding portfolio balance, down from 0.2% as of February 2023. The 90+ days delinquency ratio increased to 1.3% from 0.2% of the outstanding portfolio balance and the cumulative default ratio remained at 0.0% in the same period.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis on the remaining pool of receivables and updated its base-case default and recovery rate assumptions on the outstanding portfolio to 21.6% and 76.9%, respectively, at the B (sf) credit rating level. Morningstar DBRS kept unchanged its one-year base-case PD at 4.3%.

CREDIT ENHANCEMENT
As of the February 2024 payment date, the credit enhancements to the Class C and Class D Notes stood at 99.6% and 42.1%, respectively, up from 70.3% and 30.2%, respectively, as of February 2023. The credit enhancements to the notes are provided by the subordination of the junior class of notes. The increase in the credit enhancements to the rated notes prompted the credit rating upgrade on the Class D Notes.

The transaction includes a cash reserve, which is available to cover senior fees and interest on the Class C Notes. The cash reserve amortises subject to the target level being equal to 2.0% of the outstanding balance of the Class C Notes.

BNP Paribas, Succursale Italia (BNP Italy) acts as the account bank for the transaction. Based on the Morningstar DBRS private credit rating on BNP Italy, 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 rating assigned to the Class C Notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the 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 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, 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 ratings is the "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 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 Securitisation Services S.p.A. 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 impact the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purpose 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 16 May 2023, when Morningstar DBRS upgraded its credit ratings on the Class C and Class D Notes to AAA (sf) and BBB (sf), respectively, from AA (high) (sf) and CCC (sf), respectively. As of the February 2024 payment date, the Class A1, Class A2, and Class B Notes were fully repaid.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.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):

-- PD Rates Used: base-case PD of 4.3%, a 10% and 20% increase of the base-case PD.
-- Recovery Rates Used: base-case recovery rates of 76.9%, 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 on the Class C Notes at AAA (sf) and the Class D Notes at AA (high) (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 not have an impact on the aforementioned credit ratings either.

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: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 25 June 2019

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.

-- Rating CLOs Backed by Loans to European SMEs (23 February 2024) and SME Diversity Model 2.6.1.4,
https://dbrs.morningstar.com/research/428543
-- 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
-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051
-- 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.