DBRS Assigns Final Rating to Carismi Finance S.r.l.

DBRS Ratings Limited (“DBRS”) has today assigned a final rating of A (high) (sf) to the EUR 252,600,000 Class A Asset Backed Floating Rate Notes (the “Class A Notes” or the “Senior Notes”) issued by Carismi Finance S.r.l. (the “Issuer”). The Issuer is a limited liability company incorporated under the laws of Italy. 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 Cassa di Risparmio di San Miniato (“Carismi” or the “Originator”).

The asset transfer documents were signed on 24 April 2014 and were amended on the Issue Date. The economic effect of the transfer of the portfolio from the Originators to the Issuer took place on 1 March 2014 (the “Initial Effective Date”) with an aggregate par balance of EUR 400.94 million, consisting of 2,843 loans to 2,415 borrower groups. The transaction includes an 18-month reinvestment period (the “Revolving Period”), during which principal cash flows will be used to acquire new loans according to certain conditions and limitations (the “Criteria”). In addition, the Revolving Period will end if certain performance conditions are breached (“Purchase Termination Events”).

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, the adequacy of the Criteria and the Purchase Termination Events:
-- Carismi will act as the Servicer and Cassa di Risparmio di Cesena S.p.A. will act as the Back-up Servicer. DBRS has factored a further loss of funds due to commingling risk for its rating analysis.
-- The transaction mitigates the set-off risk by providing a Set-Off Reserve Account into which part of the Initial Limited Recourse Loan will be used to fund an amount of EUR 14.24 million. During the Revolving Period, balances of the Set-Off Reserve Account are matched with the set-off risk exposure of the portfolio and of any additional portfolio.
-- The credit enhancement for the Class A Notes is 40.33%, which DBRS considers to be sufficient to support the A (high) (sf) rating.
• The only cash trapping mechanism in the transaction is available upon the default of the Originator, where the Class A Notes will amortise by any available proceeds before any junior payments can be made.
• During the Revolving Period purchases of the additional portfolio are limited to use of the principal proceeds while excess spread will be used to amortise the Class A Notes if there are any defaults on the portfolio.
• 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”) will have an Initial Cash Reserve Amount of EUR 13,345,000, which consists of two parts:
-- First, the Liquidity Reserve Amount (3% of Principal Outstanding Amount of the Senior Notes) which is available to cover any shortfalls in the senior fees and interest on the Class A Notes and is available to cover Class A Notes amortization upon Final Maturity. The Initial Liquidity Reserve Account will be funded by EUR 7,578,000 from the proceeds of the Limited Recourse Loan.
-- Second, the Target Cash Reserve Amount (which is available to cover for defaults) on each payment date will be the difference between the Initial Cash Reserve Amount and the Liquidity Reserve Amount. The Initial Cash Reserve Amount will be the sum of Initial Liquidity Reserve Amount and an amount of EUR 5,767,000 funded from the collections made on the Initial Portfolio between the Initial Effective Date and the Issue 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 Senior Notes will be made Semi-Annually.
• 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 by creating worst case scenarios based on the Criteria and per the principal methodology specified below:
• The annualised probability of default (“PD”) for Carismi, determined using the arrears data supplied, was computed to be 4.15%.
• The assumed weighted average life (“WAL”) of the portfolio was 7.39 years, which takes into account the length of the Revolving Period as well as the permitted loan extensions by the Servicer.
• 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 66.36% and 16.09% were used for the secured and unsecured loans respectively at the A (high) (sf) rating level. DBRS determined recovery rates by creating a worst case pool in line with the permitted variations and the Criteria.
• 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 Originator, the Issuer and the Arrangers, Valore e Capitale S.r.l. and Grasberg 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 180 days definition of default, which is different to the standard of 90 days used by DBRS. However, DBRS was provided with additional information including historic loan amortization and prepayments data which is considered sufficient by DBRS for its rating analysis. DBRS considers the overall information received for the purposes of providing this rating was of good 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 4.15%, a 10% and 20% increase on the base case PD.
• Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 37.7% at the A (high) (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). A decrease in the recovery rate assumption by 20% would cause a downgrade of the Class A Notes to A (low) (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 A (low) (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.

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

Initial Lead Analyst: Mudasar Chaudhry
Initial Rating Date: 08 July 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”