DBRS Confirms Palladium Securities 1 SA Series 121 Notes–Collateral Issued by the Republic of Italy

DBRS Ratings Limited (“DBRS”) has today confirmed the A (low) (sf) rating on the EUR 150 million Series 121 CMS Structured Floating Rate Instruments due 2021 (the “Notes”) issued by Palladium Securities 1 S.A. acting in relation to Compartment 121-2013-21 (the “Issuer”).

The Issuer is a public limited liability company (société anonyme) incorporated under the laws of the Grand Duchy of Luxembourg. The transaction is a cash flow securitisation collateralised by a sovereign inflation-linked bond issued by the Republic of Italy (the “Collateral”), ISIN IT0004604671. The noteholders and other transaction counterparties have recourse only to the assets in Compartment 121-2013-21 in accordance with Luxembourg law.

The transaction is a credit linked note (“CLN”) in which the Issuer uses an asset swap (the “Asset Swap”) to transform the payout profile of a debt security. The noteholders are effectively exposed to the risk that either the Collateral or the counterparties default. The transaction documents do not contain any downgrade provisions with respect to Deutsche Bank AG, London Branch (acting as the Hedging Counterparty). As such, DBRS regards the rating of the Notes to be linked to those of the Collateral and Hedging Counterparty.

DBRS maintains an internal assessment on the Collateral Guarantor to evaluate the credit risk of the Collateral and monitor its credit risk on an ongoing basis. DBRS does not rate the Collateral or the Collateral Guarantor. The internal assessment of the Collateral Guarantor is an opinion regarding its creditworthiness based primarily upon pubic ratings. Internal assessments are not ratings, and are not published.

The current rating action is a result of a review on such internal assessment that DBRS maintains on the Collateral Guarantor and also reflects material updates to the methodologies DBRS uses to rate and monitor CLOs backed by corporate credit (see “Rating CLOs and CDOs of Large Corporate Credit” and “Cash Flow Assumptions for Corporate Credit Securitizations,” both published 21 January 2014).

The previous rating action on this transaction took place on 22 January 2014, when the rating of the Notes was placed Under Review with Developing Implications following this methodology update.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is “Rating Methodology for CLOs and CDOs of Large Corporate Credit”. 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

The sources of information used for this rating include Palladium Securities 1 SA and other public sources.

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. The extent of any factual investigation or independent verification depends on facts and circumstances.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

As this is a CLN, sensitivity analysis is not applicable.

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/cerep-web/statistics/defaults.xhtml.

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

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

Initial Lead Analyst: Simon Ross
Initial Rating Date: 7 October 2013
Initial Rating Committee Chair: Jerry van Koolbergen

Most Recent Rating Update: 22 January 2014
Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry van Koolbergen

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

“Legal Criteria for European Structured Finance Transactions”
“Derivative Criteria for European Structured Finance Transactions”
“Rating Methodology for CLOs and CDOs of Large Corporate Credit”