DBRS Assigns Ratings to Class A Notes Issued by Credico Finance 14 S.r.l.

DBRS Ratings Limited (“DBRS”) has today assigned final ratings to the notes issued by Credico Finance 14 S.r.l. (the “Issuer”), as follows:

EUR 219,400,000 Class A Asset Backed Floating Rate Notes due July 2052: A (high) (sf)

The Issuer is a limited liability company incorporated under the laws of the Republic of Italy. The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian small and medium-sized enterprises (“SMEs”), artisans, and producer families. The portfolio is comprised of loans granted by ten unrated Italian Cooperative Banks (“BCCs”), as listed below:

• B.C.C. dell’Adriatico Teramano (“BCC Teramano”)
• Banca di Credito Cooperativo dell’alta Brianza – Alzate Brianza – Soc. Coop. (“BCC Alzate Brianza”)
• Banca di Credito Cooperativo di Piove di Sacco s.c. (“BCC Piove di Sacco”)
• Banca di Forlì Credito Cooperativo Società Cooperativa (“BCC Forlì”)
• Banca di Credito Cooperativo di Pompiano e della Franciacorta Soc. Coop. (“BCC Pompiano”)
• Cassa Rurale ed Artigiana di Brendola Credito Cooperativo – Società Cooperativa (“BCC Brendola”)
• Banca di Credito Cooperativo del Polesine – Rovigo S.C. (“BCC del Polesine”)
• Banca di Teramo di Credito Cooperativo – Società Cooperativa (“BCC di Teramo”)
• Banca di Credito Cooperativo di Castiglione Messer Raimondo e Pianella s.c.r.l. (“BCC Castiglione”)
• Banca Romagna Cooperativa Credito Cooperativo Romagna Centro e Macerone S.c. (“BCC Romagna”)

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in July 2052. DBRS does not rate the Class B Asset Backed Floating Rate Notes, divided into ten Notes (B1, B2, B3, B4, B5, B6, B7, B8, B9, B10, collectively the “Junior Notes”), which have an aggregate total par balance of EUR 85,376,000.

The Portfolio was transferred from the Originators to the Issuers on 8 July 2013 (the “Effective Date”), with an aggregate par balance of EUR 304.77 million and consisting of 2,370 loans to 2,135 borrowers and borrower groups. As of 8 July 2013, the portfolio was fully performing, with no loans in arrears. Between the Effective Date and 30 September 2013, the Issuer has collected EUR 11.36 million of Principal Proceeds, which are expected to be used by the Issuer to repay Class A Notes on the first payment date.

As of September 2013, the transaction portfolio consisted of 2,110 individual borrowers or borrowers groups, with a par balance of EUR 293.41 million. As of this date, the Portfolio contained:

• 122 loans with one unpaid instalment, corresponding to 5.22% of the outstanding portfolio balance;
• 17 loans with two unpaid instalments corresponding to 0.73% of the outstanding portfolio balance; and
• 13 loans with three unpaid instalments corresponding to 0.56% of the outstanding portfolio balance.

The Portfolio is diversified with respect to borrower exposure, with the top borrower group and the largest ten borrower groups representing 0.71% and 5.97% of the outstanding balance, respectively, as of 8 July 2013. The Portfolio is concentrated in Brescia and Forlì-Cesena provinces (48.85% of the outstanding balance) as BCC Pompiano branches are mainly located in Brescia and BCC Forlì ones in Forlì-Cesena. This geographical concentration is in line with the average DBRS has seen for the SME CLO market in Italy, which is dominated by regional lenders and reflects the nature of an extremely fragmented banking sector.

The Portfolio shows diversification with respect to industry concentration as per the DBRS industry schedule (please see “Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)” for a full list of DBRS industry codes), with the top three industries being “Building & Development” (26.79%), “Farming/agriculture” (21.54%), and “Retailers” (6.06%) as of 8 July 2013.

The rating of the Class A Notes is based upon DBRS’s review of the following items:

• The transaction structure, the form, and sufficiency of available credit enhancement, as well as the Portfolio characteristics.
• The structure envisages ten separate priorities of payment, one for each portfolio, which are linked through the ten Cash Reserves (“CRs”) since inception of the deal; full cross-collateralisation will take place only when some conditions are met.
• The presence of adequate cash trapping mechanisms and cross-collateralisation events that limit the leakage of excess spread for each separate priority of payments.
• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting, and servicing practices.
• An assessment of the operational capabilities of key transaction participants.
• The ability of transaction to withstand stressed cash flow assumptions and repay investors according to the approved terms. Interest and principal payments on the Class A Notes will be made quarterly.
• The soundness of the legal structure and the presence of legal opinions which address the true sale of the assets to the trust and the non-consolidation of the special purpose vehicle, as well as consistency with the DBRS “Legal Criteria for European Structured Finance Transactions”.

The BCCs will each act as the Servicer for their portion of the Portfolio. ICCREA Banca S.p.A. will act as Back-Up Servicer with respect to all BCCs and will also act as the Operating Bank, a structure common for transactions originated by cooperative banks. The transaction does not have mitigants to set-off risk. This was factored into the analysis.

The Class A Notes benefit from ten non-amortising Cash Reserves, one for each priority of payments, with an aggregate balance of EUR 8.78 million, which corresponds to 4% of the initial balance of the Class A Notes. Each of the CRs is entirely available to cover senior expenses and missed interest payments on the Class A Notes throughout the life of the transaction. In addition, each CR can be used to make up for principal shortfalls related to any priority of payments, provided that the balance of each CR does not fall below 3% of the outstanding balance of the portion of the Class A Notes related to the relevant priority of payments.

DBRS determined the rating of the Class A Notes as follows, as per the principal methodology specified below:
• The annualised probability of default (“PD”) for the originators was determined using the arrears data supplied. This was computed to be 2.97%.
• The assumed weighted average life (“WAL”) of the Portfolio was 5.19 years.
• The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the target rating.
• The recovery rate was determined by considering the market value declines (“MVDs”) for Italy, the security level, and the type of collateral. Recovery rates of 73.47% and 16.68% were used for the secured and unsecured loans, respectively.
• The break even rates for the interest rate stresses and default timings were determined using the DBRS cash flow model.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is “Rating CLOs Backed by Loans to European Small and Medium Sized Enterprises (SMEs)”. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisation in the EURO Area” at:
http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include the parties involved in the rating, including but not limited to the Originators, the Issuer, the Arrangers, A & F S.A. and ICCREA Banca S.p.A. and the Representative of Noteholders, Accounting Partners S.r.l.

The vintage performance data provided did not match the definition that DBRS bases its analysis on. The historical performance data was based on the 365 days definition of default, which is different to the standard of 90 days used by DBRS. However, DBRS used additional dynamic arrears data provided by each of the Originators to determine a conservative blended-average annual default rate. DBRS considers the overall information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

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

Information regarding DBRS ratings, including definitions, policies and methodologies is available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• Probability of Default Rates Used: Base Case PD of 2.97%, a 10% and 20% increase on the base case PD.
• Recovery Rates Used: Base Case Recovery Rate of at the stress level of 73.47% for secured loans and 16.68% for unsecured loans, 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.

DBRS concludes that a hypothetical increase of the base case PD by 10% or a hypothetical decrease of the Recovery Rates by 10%, ceteris paribus, would each lead to the confirmation of the transaction at A (high) (sf). A scenario combining both an increase in the PD by 20% and a decrease in the Recovery Rates by 20% would lead to a downgrade of the Class A Notes to A (sf).

For further information on DBRS’s historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository see:
http://cerep.esma.europa.eu/cerepweb/statistics/defaults.xhtml.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Marcello Bonassoli
Initial Rating Date: 21 October 2013
Initial Rating Committee Chair: Simon Ross

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at:
http://www.dbrs.com/about/methodologies

“Rating CLOs Backed by Loans to European Small and Medium Sized Enterprises (SMEs)”
“Legal Criteria for European Structured Finance Transactions”
“Unified Interest Rate Model for U.S. and European Structured Credit”
“Cash Flow Assumptions for Corporate Credit Securitizations”
“Operational Risk Assessment for European Structured Finance Servicers”
“Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”