DBRS Assigns Final Ratings to Vela RMBS S.r.l.

DBRS Ratings Limited (‘DBRS’) has today assigned final ratings of AA (high) (sf) to the EUR 504,600,000 Class A Notes (the ‘Notes’) issued by Vela RMBS S.r.l. (‘Issuer’).

The Issuer is a limited liability company incorporated under the laws of the Republic of Italy in 2014.
This is the eighth issuance of loans originated by Banca Nazionale del Lavoro S.p.a. to be securitised.

The Notes are backed by a portfolio of first lien, fully amortising mortgage loans originated by Banca Nazionale del Lavoro S.p.a. (‘BNL’ or the ‘Originator’). The portfolio is well distributed across Italian regions. The three regions most represented in the portfolio are Lazio (22.00%), Lombardia (14.93%) and Toscana (9.28%). The portfolio is granular with a total of 8,610 loans and an average loan balance equal to at EUR 70,524. The transaction has a low Weighted Average Current Loan-to-Value (WACLTV) of 52.86% (un-indexed). The original Weighted Average Loan-to-Value (WAOLTV) was 59.52% (also un-indexed).

The transaction’s structural features account for separate interest and principal Priority of Payments. Principal proceeds are available to pay interest to the Class A notes or senior fees if necessary.

As of 12th July 2014 (‘Valuation Date’), the transaction portfolio consisted of 8,610 loans extended to the same number of borrowers. The loans in the transaction are granted to borrowers categorised under Bank of Italy SAE code 600-individuals (84.32%), SAE code 614-artisan (1.06%), and SAE code 615-small commercial borrowers (14.62%). The notional balance of the loan portfolio at the Valuation Date was EUR 607.2 million.

The Originator, Servicer and Account Bank of the transaction is BNL. The Back-Up Servicer Facilitator is Securitisation Services.The DBRS Private Rating of BNL is above the Minimum Institution Rating given the assigned ratings to the Notes, as described in the DBRS Legal Criteria for European Structured Finance Transactions.

Credit enhancement for the Notes (18.56%) is provided by subordination of the Class J Notes. The Reserve Fund has been established through an over issuance of the class J notes at €10.092.000 (2.00% of original amount the Class A Notes). The Reserve Fund can amortise during the life of the transaction to 4.00% of the outstanding Class A Notes if the follow conditions are met: (i) the outstanding amount of the Class A Notes is below 50% of the original amount, (ii) the Cumulative Net Default Ratio is below 3.00%, (iii) principal balance of the mortgages 90 plus days in arrears is lower than 2.5%, (iv) the unpaid Principal Deficiency Ledger is equal to zero and (v) the Reserve Fund is fully funded as of the previous payment date. Additionally, the Reserve Fund has a floor of EUR 2,523,000 (0.50% of the original amount of the Class A Notes). The Reserve Fund is available to pay the senior fees, the interest on the Class A Notes and defaults. Following the payment date on which the Reserve Fund begins to amortise, the amount above the target Reserve Fund amount will be used to repay the Class J notes.

The Class A Notes will receive interest equal to three-months Euribor plus a margin of 0.80%. The Class A Notes will receive step-up coupon equal to 1.60%% when the aggregate balance of the portfolio is less than or equal to 10% of the initial portfolio balance. The mortgage interest rates are primarily indexed to one-months Euribor (66.54%), with additional exposure to three-months Euribor (16.33%), fixed interest rates (16.28%) and six-month Euribor (0.85%). DBRS has modeled the interest rate basis risk associated with the mismatch between the interest rates on the mortgages and interest rate on the Class A notes, using its Unified Interest Rate Methodology.

The Servicing Agreement allows for a limited percentage of the portfolio (5.00%) to be renegotiated. Defaulted loan are the only loans eligible for renegotiation. The Servicing Agreement also allows the Originator to repurchase up to 10% of the outstanding portfolio on an annual basis based on the current outstanding balance of portfolio at the beginning of each year.

The ratings are based upon DBRS review of the following analytical considerations:

• Transaction capital structure and form and sufficiency of available credit enhancement.
• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to terms in which they have invested.
• The transaction parties’ capabilities with respect to originations, underwriting, servicing, and financial strength.
• The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.
• Incorporation of a sovereign related stress component in our stress scenarios due to the rating assigned by DBRS to the Republic of Italy’s to ‘A (low)’ - Negative Trend.

DBRS credit analysis is performed on a loan-level basis and includes a Probability of Default and Loss Given Default assessment, an originator and servicer specific historical performance review, an analysis of loan default data, Italian housing market and property price trend evaluation. A cash flow analysis has been done based on the following assumptions:

• front- and back- loaded defaults and recoveries
• upward and downward interest rate scenarios
• prepayment rate assumption at 0%, 5%, 10%, 20%, and 30% CPR

DBRS assessed the two year probability of default, utilising BNL’s definition of defaults in the previous Vela transactions. The definition is more stringent than the definition of ‘sofferenza’ (Bank of Italy) and also includes mortgages in ‘incaglio’ as well as all the mortgage with more than seven unpaid instalments (monthly mortgage) or more than two unpaid instalments (semi-annual mortgage).

Note:
All figures are in Euro unless otherwise noted.

The principal methodologies applicable is Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.

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 Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include working papers and data on the Italian economy and housing market provided by: ECB, Eurostat, Bank of Italy, Nomisma, Istituto Nazionale di Statistica (ISTAT). DBRS conducted an operational review on the origination and servicing practices of BNL in July 2014. The Originators provided loan-level data and historical performance of mortgage portfolio dating back to 1997. DBRS considers the 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. The extent of any factual investigation or independent verification depends on facts and circumstances.

These ratings concern newly issued financial instruments. These are the first DBRS ratings on these financial instruments.

The full report providing additional analytical detail is available by clicking on the link or by contacting us at info@dbrs.com.

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

To assess the impact of a change in the transaction parameters (Probability of Default (‘PD’) and/or Loss Given Default (‘PD’)) on the rating of Class A Notes, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• In respect of Class A Notes and a rating category of “AA(high) (sf)”, the PD of 30.45%, with a 25% and 50% increase on the PD.
• In respect of Class A Notes and a rating category of “AA(high) (sf)”, an LGD of 28.76%, with a 25% and 50% increase on the LGD.

DBRS concludes that for the Class A Notes:
• A hypothetical increase of the PD by 25%, ceteris paribus, would lead to downgrade of the Class A Notes to AA(low) (sf).
• A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to maintain of the Class A Notes to AA(high) (sf).
• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade of the Class A Notes to AA(low) (sf).
• A hypothetical increase of the PD by 50%, ceteris paribus, would lead to downgrade of the Class A Notes to A (sf).
• A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to maintain of the Class A Notes to AA(high) (sf)
• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade of the Class A Notes to A (sf).
• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade of the Class AA(low) Notes to A (sf).
• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade of the Class A Notes to A (sf).

For further information on DBRS 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.

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

Initial Lead Analyst: Davide Nesa
Initial Rating Date: 08/10/2014
Initial Rating Committee Chair: Erin Stafford
Lead Surveillance Analyst: Elisa Scalco

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
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations