Morningstar DBRS Assigns Credit Rating to BPL Mortgages S.r.l., Series V Class A-2024 Notes and Downgrades Credit Ratings on Outstanding Class A-2012, Class A-2016, and Class A-2019 Notes Following Amendment

DBRS Ratings GmbH (Morningstar DBRS) assigned a credit rating of AA (sf) to the Class A-2024 Notes issued by BPL Mortgages S.r.l. (the Issuer), Series V following a restructuring of the transaction that was put into effect today (the Third Restructuring, after those in 2016 and 2019). At the same time, Morningstar DBRS downgraded its outstanding credit ratings on the Class A-2012 Notes, issued in December 2012; the Class A-2016 Notes, issued in October 2016; and the Class A-2019 Notes, issued in March 2019, to AA (sf) from AAA (sf).

The credit ratings assigned to the Class A-2012 Notes, the Class A-2016 Notes, the Class A-2019 Notes, and the Class A-2024 Notes (together, the Class A Notes) address the timely payment of interest and the ultimate repayment of principal on or before the final maturity date in January 2062.

The Class A Notes will rank pari passu and without any priority among themselves, but with priority over the outstanding Class B Notes in this transaction, which Morningstar DBRS does not rate.

CREDIT RATING RATIONALE

The Issuer is a bankruptcy-remote special-purpose vehicle incorporated in Italy. Using the proceeds of the Class A-2024 Notes, the Issuer purchased an additional portfolio of Italian mortgage loans originated by Banco BPM SpA (BPM) or any of the entities that merged with BPM in the past (all together, the originator), which, in combination with the existing portfolio, make up the aggregate portfolio. Furthermore, the originator purchased back some loans from the portfolio, including nonperforming loans.

The credit rating downgrades follow Morningstar DBRS' review of the transaction after the Third Restructuring and are mainly reflective of the reduction of the credit enhancement of the Class A Notes, which has decreased to 32.8% (calculated as a percentage of the aggregate portfolio and consisting of subordination of the Class B Notes) from 51.0% as of April 2024.

The transaction structure benefits from a cash reserve, fully funded by the originator, which provides liquidity support to the Class A Notes. This reserve, set at 3.0% of the initial balance of the Class A Notes as of the Third Restructuring date, is subject to a EUR 40 million floor. Any released amounts following the amortisation of the reserve will flow through the combined waterfall structure.

As of 9 June 2024, the aggregate portfolio consisted of 35,012 mortgages with a current balance of EUR 3.28 billion. Loans already outstanding represented 45.0% of the portfolio, while the rest (55.0%) corresponded to mortgage loans purchased by the Issuer in the Third Restructuring. The weighted-average (WA) seasoning of the portfolio is 8.9 years with a WA time to maturity of 16.9 years. The WA loan-to-value of the portfolio (calculated by Morningstar DBRS on the indexed property value) is 56.3%. The portfolio is concentrated in Lombardy, which accounts for 40.2% of the pool balance. There are no loans in arrears for more than one month.

The predominant type of interest rate in this portfolio is fixed rate (60.4%), mainly fixed for life, with a WA interest rate on the portfolio of 3.2%. The pool includes optional mortgages (13.5%), where the borrower has the option to switch from a floating rate to a fixed rate every three years from the origination date. The Class A Notes will pay interest linked to one-month Euribor on a quarterly basis.

BNP Paribas Succursale Italia (BNP Paribas, Italian Branch or BNPP) acts as, among other roles, the transaction account bank and the paying agent for the transaction. The transaction's agency and accounts agreement requires BNPP or the Issuer to find an eligible replacement transaction account bank upon loss of an applicable A (low) account bank rating. The applicable account bank rating is the higher of one notch below the Morningstar DBRS' Long Term Critical Obligation Rating, Long-Term Senior Debt rating, and Long-Term Deposits rating on BNPP. Based on Morningstar DBRS' private credit rating on BNPP and the account bank replacement provisions included in the transaction documents, Morningstar DBRS considers the risk of this counterparty to be consistent with the credit ratings assigned to the Class A Notes, in accordance with its "Legal Criteria for European Structured Finance Transactions".

Morningstar DBRS based its credit ratings on a review of the following analytical considerations:
-- The amendments to the transaction in the context of the Third Restructuring, including the purchase of additional mortgage loans by the Issuer and the update of the documentation;
-- The transaction capital structure and form and sufficiency of available credit enhancement;
-- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. Morningstar DBRS calculated probability of default (PD), loss given default (LGD), and expected loss (EL) outputs on the mortgage portfolio. Morningstar DBRS uses the PD, LGD, and ELs as inputs into the cash flow tool. Morningstar DBRS analysed the mortgage portfolio in accordance with its "European RMBS Insight: Italian Addendum";
-- The transaction's ability to withstand stressed cash flow assumptions and repay the Class A Notes according to the terms of the transaction documents. Morningstar DBRS analysed the transaction structure using Intex DealMaker, considering the default rates at which the Class A Notes did not return all specified cash flows;
-- The transaction parties' financial strength to fulfil their respective roles.
-- The consistency of the legal structure with Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.

Morningstar DBRS' credit ratings on the Class A Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest payment amounts and the related class balances.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the credit ratings are: Master European Structured Finance Surveillance Methodology (06 August 2024), https://dbrs.morningstar.com/research/437540; European RMBS Insight Methodology (25 March 2024), https://dbrs.morningstar.com/research/430103; and
European RMBS Insight: Italian Addendum (28 June 2024), https://dbrs.morningstar.com/research/435263.

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.

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/436000.

The sources of data and information used for these credit ratings include investor and servicer reports provided by BPM, historical performance data of the originator's loan book (delinquencies, constant default rates and prepayment rates) from Q1 2014 to Q4 2023, and loan-by-loan data as of 9 June 2024.

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

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.

This credit rating concerns a newly issued financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

The last credit rating action on this transaction took place on 23 February 2024, when Morningstar DBRS confirmed the credit ratings on the notes issued by BPL Mortgages S.r.l., Series V.

The lead analyst responsibilities for this transaction have been transferred to Tomas Rodriguez-Vigil Junco.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on 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):

In respect of the Class A Notes, a PD of 21.5% and an LGD of 23.2% corresponding to the AA (low) (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in LGD, expected credit rating of A (high) (sf)
-- 25% 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, 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: Tomas Rodriguez-Vigil Junco, Vice President
Rating Committee Chair: Rehanna Sameja, Senior Vice President
Initial Rating Date: 24 December 2012

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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.

-- European RMBS Insight Methodology (25 March 2024),
https://dbrs.morningstar.com/research/430103
-- European RMBS Insight: Italian Addendum (28 June 2024),
https://dbrs.morningstar.com/research/435263 and European RMBS Insight model v.8.0.0.1.
-- Master European Structured Finance Surveillance Methodology (6 August 2024),
https://dbrs.morningstar.com/research/437540
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435278
-- Operational Risk Assessment for European Structured Finance Originators (6 August 2024),
https://dbrs.morningstar.com/research/437541
-- Operational Risk Assessment for European Structured Finance Servicers (6 August 2024),
https://dbrs.morningstar.com/research/437543
-- 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.