DBRS Assigns Final Ratings to BPL Mortgages S.r.l., Series VII

DBRS Ratings Limited (“DBRS”) has today assigned final ratings to the Notes issued by BPL Mortgages S.r.l. (the “Issuer”), as follows:

• EUR 1,077,400,000 Class A – 2014 Asset Backed Floating Rate Notes due November 2054 (ISIN:IT0005029944): A (sf)
• EUR 269,300,000 Class B – 2014 Asset Backed Floating Rate Notes due November 2054 (ISIN:IT0005029969): BBB (low) (sf)

The transaction is a cash flow securitisation collateralised by a portfolio of bank loans to Italian small and medium-sized enterprises (“SMEs”), entrepreneurs, artisans and self-employed individuals which were granted by Banco Popolare - Società Cooperativa (“BP”) and Credito Bergamsco S.p.A. (“Creberg” and collectively with BP, the “Originators”). On 1 June 2014, Creberg was merged into BP and ceased to exist as a standalone entity. As clarified in the transaction agreements, BP has assumed all Creberg obligations and rights arising from agreements executed before 1 June 2014.

The Class A Notes will rank senior to the Class B Notes with respect to interest and principal payments. However, the interest payments due on Class B Notes will rank senior with respect to the principal repayments on Class A Notes. The ratings on Class A Notes and Class B Notes (the “Rated Notes”) address the timely payment of interest and the ultimate payment of principal payable on or before the Maturity Date in November 2054. DBRS does not rate the Class C Notes (the “Junior Notes”).

The economic effect of the transfer of the portfolio from the Originators to the Issuer took place on 12 May 2014 (the “Valuation Date”) with an aggregate par balance of EUR 1,792.24 million, consisting of 14,504 loans to 13,021 borrower groups. As of this date, the portfolio contained 726 loans in arrears by less than 30 days with an aggregated balance of EUR 106.32 million (5.93% of the portfolio balance).

The ratings of the Rated Notes are based upon DBRS’s review of the following items:
• The transaction structure, the form and sufficiency of available credit enhancement, the portfolio characteristics:
o The transaction is well diversified by borrower groups. The exposure to the largest one, ten and twenty borrower groups represent 0.97%, 5.32%, and 7.84%, respectively. As per DBRS industry classification, the portfolio exhibits very high concentration towards “Building & Development”, which represents 55.06% of the portfolio. The top three regions represented in the portfolio are Lombardy (33.31%), Emilia-Romagna (17.02%) and Marche (13.45%). Overall, the portfolio regional concentrations reflect the distribution of the BP’s branches across Italy.
o BP will act as Servicer, and Securitisation Services S.p.A. will be the Back-up Servicer Facilitator. DBRS views the B (low) rating trigger for the appointment of a generic Back-up Servicer as a weakness. To account for the lack of adequate mitigants to the commingling risk, a loss has been factored into the rating analysis.
o The transaction does not have mitigants dedicated to the set-off risk. In addition, 7.5% of the total set-off exposure is due to derivative contracts, with no certainty that such exposure crystallises at the Transfer Date. This was factored into DBRS’s analysis of the transaction.
o The credit enhancements for the Class A Notes and Class B Notes are 44.39% and 29.37% respectively, which DBRS considers to be sufficient to support the A (sf) and BBB (low) (sf) ratings, respectively.
• The priority of payments, which ensures that the excess interest is fully used to amortised the Rated Notes before junior payments are made. However, the lack of a trigger based on transaction performance to defer Class B Notes interest limits the positive impact of such cash trapping mechanism on Class A Notes.
• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting, and servicing practices.
• The Cash Reserve (“CR”), which will be available to cover any shortfalls in the senior fees and interest on the Rated Notes. The CR is non-amortising, which will increase the liquidity protection to the Rated Notes as they pay down. The balance of the CR will be maintained at EUR 80.80 million and has been funded through the proceeds of a subordinated loan granted by BP and the interest collections received by the Issuer between the Valuation Date and the Closing Date.
• An assessment of the operational capabilities of key transaction participants.
• The ability of the transaction to withstand stressed cash flow assumptions and repay Noteholders according to the approved terms. Interest and principal payments on the Rated 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 Issuer, as well as consistency with the DBRS “Legal Criteria for European Structured Finance Transactions”.

DBRS determined the ratings of the Class A Notes and Class B Notes as follows, as per the principal methodology specified below:
• The annualised probability of default (“PD”) for BP, determined using the arrears data supplied, was computed to be 5.78%.
• The assumed weighted average life (“WAL”) of the Portfolio was 4.54 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 73.83% and 16.20% were used for the secured and unsecured loans respectively at the A (sf) rating level, and 81.62% and 16.95% respectively at the BBB (low) (sf) rating level.
• 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.

All DBRS methodologies 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 and the Arranger, Banco Popolare – Società Cooperativa.

The vintage performance data provided did not match the definition that DBRS bases its analysis on. The historical performance data was based on the “sofferenza” definition of default, which is different to the standard of 90 days used by DBRS. However, DBRS used additional dynamic arrears data provided by the Originators to determine a conservative average annual default rate. DBRS considers the overall information received 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 a change of the transaction parameters would have on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the “Base Case”):
• Probability of Default Rates Used: Base Case PD of 5.78%, a 10% and 20% increase on the base case PD.
• Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 42.51% at the A (sf) stress level and 46.48% at the BBB (low) (sf) stress level, a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concluded that a hypothetical increase of the Base Case PD by 20% would cause a downgrade of the Class A Notes to A (low) (sf) and a downgrade of the Class B Notes to BB (high) (sf). A decrease in the recovery rate assumption by 20% would cause a downgrade of the Class A Notes to BBB (high) (sf) and a downgrade of the Class B Notes to BB (high) (sf). A scenario combining an increase in the PD by 10% and a decrease in the recovery rate assumption by 10% would cause a downgrade of the Class A Notes to BBB (high) (sf) and a downgrade of the Class B Notes to BB (high) (sf).

It should be noted that the interest rates and other parameters that would normally vary with rating level, including the recovery rates, were allowed to change as per the DBRS methodologies and criteria.

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: 30 June 2014
Initial Rating Committee Chair: Jerry van Koolbergen, MD U.S. & European Structured Credit

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)”
“Rating Methodology for CLOs and CDOs of Large Corporate Credit”
“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”