Morningstar DBRS Upgrades Credit Ratings on Fucino RMBS S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit ratings on the Class A1 and Class B Notes issued by Fucino RMBS S.r.l. (the Issuer) as follows:

-- Class A1 Notes to AAA (sf) from AA (low) (sf)
-- Class B Notes to AA (low) (sf) from A (sf)

The credit rating on the Class A1 Notes addresses the timely payment of interest and the ultimate repayment of principal by the final maturity date in December 2063. The credit rating on the Class B Notes (together with the Class A1 Notes, the rated notes) addresses the ultimate payment of interest and the ultimate repayment of principal by the final maturity date in December 2063.

CREDIT RATING RATIONALE
The upgrades 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 April 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 rated notes to cover the expected losses at their respective credit rating levels.

Fucino RMBS S.r.l. is a securitisation of residential mortgage loans granted by Banca del Fucino S.p.A. (Banca del Fucino) to individuals and families residing in Italy. Banca del Fucino services the portfolio, with Centotrenta Servicing S.p.A. acting as the backup servicer. The portfolio shows a notable concentration in central Italy, especially in the regions of Lazio and Abruzzo.

The transaction initially closed in April 2019, when the Class A, Class B, and Class J Notes were issued. In June 2022 (the subsequent issue date), the transaction was amended. As part of the amendment, a new series of notes, the Class A1 Notes, were issued; an additional portfolio was purchased; the Class A Notes were redeemed; and the Class B and Class J Notes were partially repaid.

PORTFOLIO PERFORMANCE
The portfolio is performing within Morningstar DBRS' expectations. As of the February 2024 cut-off date, arrears were low, with the 90+-day delinquency ratio at 0.2% of the portfolio performing balance, while no loans defaults have been recorded so far.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the outstanding pool of receivables and updated its base-case PD and LGD assumptions to 7.9% and 18.4%, respectively.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement to the rated notes. As of the April 2024 payment date, credit enhancement to the Class A1 and Class B Notes was 25.3% and 20.2%, respectively, up from 18.6% and 14.4%, respectively, as of the March 2023 payment date. The increase in credit enhancement prompted the credit rating upgrades.

The transaction benefits from a cash reserve, which provides liquidity support and is available to cover senior fees, swap payments, and coupon payments on the Class A1 Notes only. As of the latest payment date, the cash reserve was at its target level of EUR 2.96 million, or 3.5% of the outstanding balance of the rated notes. The cash reserve is floored at 1.0% of the rated notes balance as of the subsequent issue date.

BNP Paribas SA acts as the account bank for the transaction. Based on BNP Paribas SA's reference credit rating of AA (which is one notch below its Morningstar DBRS Long Term Critical Obligations Rating of AA (high)), 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 notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Three swap transactions are in place: two to hedge the basis risk, and one to hedge the fixed-floating interest rate risk. J.P. Morgan SE acts as the swap counterparty. Morningstar DBRS has given credit only to the fixed-floating swap, as the swap documentation of the basis swaps is not fully compliant with Morningstar DBRS' "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 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 the Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051.

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 payment reports provided by Centotrenta Servicing S.p.A., servicer reports and additional information provided by Banca del Fucino, 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.

Both at the time of the initial credit ratings and at the time of the subsequent issue date, 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 26 May 2023, when Morningstar DBRS confirmed its credit ratings on the Class A1 Notes and the Class B Notes at AA (low) (sf) and A (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 rating (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 7.9% and 18.4%, 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.

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 AA (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 (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 BBB (high) (sf)
-- 50% increase in PD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (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.

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 Date: 15 April 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://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051
-- European RMBS Insight Methodology (25 March 2024) and European RMBS Insight Model version 7.0.1.0, https://dbrs.morningstar.com/research/430103
-- 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
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://dbrs.morningstar.com/research/420754

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].