DBRS Assigns Rating to Asti PMI S.r.l.

DBRS Ratings Limited (DBRS) has today assigned a rating to the Class A Notes issued by Asti PMI S.r.l. (the Issuer), as follows:

-- EUR 410,000,000 Class A Notes due July 2064 (ISIN: IT0005067159): AA (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. The loans were originated by Cassa di Risparmio di Asti S.p.A (C.R.Asti or the Originator).

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 2064. DBRS does not rate the Class B Notes.

The economic effect of the transfer of the portfolio from the Originator to the Issuer took place on 31 July 2014 (the Valuation Date) with an aggregate par balance of EUR 683.20 million, consisting of 5,419 loans extended to 4,662 borrowers. As of this date, 99.4% of the portfolio was current on payments. Some of the loans included in this transaction were also part of the previous SME CLO of the Originator, Asti Finance PMI S.r.l., which was unwound in April 2014.

DBRS based its analysis on the updated portfolio dated 30 September 2014, which has an aggregate balance of EUR 664.01 million, consisting of 5,341 loans extended to 4,596 borrowers. As of 30 September 2014, loans with any amount in arrears represent 2.9% of the outstanding balance of the portfolio.

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 and the following portfolio characteristics:
o The portfolio weighted-average life (5.7 years) is consistent with other Italian SME CLO transactions.
o The portfolio benefits from a high portion of secured loans (67.1%) with no high loan-to-values (the weighted-average portfolio loan-to-value is 59.3%).
o The transaction is diversified by borrowers. The exposure to the largest one, ten and twenty borrowers represents 0.90%, 6.6%, and 11.5% of the portfolio, respectively. As per DBRS industry classification, the portfolio exhibits a very high concentration towards “Building & Development”, which represents 50.8% of the portfolio. The portfolio geographical concentration reflects C.R.Asti’s presence in Piedmont and Lombardy.
o C.R.Asti will act as Servicer, and Unipol Banca S.p.A. will be the Back-up Servicer. The appointment of a back-up servicer is envisaged under the transaction documents, and the Back-up Servicer Facilitator will take the place of the Servicer within five days. Based on DBRS private valuation of the Back-up Servicer, DBRS considers that there are not adequate mitigants to the commingling risk and DBRS stressed in its analysis the interruption of interest and principal proceeds for a period of six months by assuming senior expenses and interest on the Senior Notes would be paid from the Cash Reserve for this period.
o The transaction does not have mitigants dedicated to the set-off risk, This was factored into DBRS’s analysis of the transaction.
o The credit enhancement for the Class A Notes is 41.9%, which DBRS considers to be sufficient to support the AA (sf) rating.
• The priority of payments, which ensures that the excess interest is used fully to amortise the Class A Notes before junior payments are made.
• 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), with an initial balance of EUR 13.0 million funded with a portion of the Subordinated Loan granted by C.R.Astis, Cash Reserve will be available to cover any shortfalls in the senior fees and interest on the Class A Notes. The CR is amortising and will be maintained at 3.0% of the outstanding balance of the Class A Notes, with a floor of EUR 1.0 million.
• 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 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 Issuer, as well as consistency with the DBRS “Legal Criteria for European Structured Finance Transactions”.

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 securitised portfolio, determined using the arrears data supplied, was computed to be 5.90%.
• The assumed weighted-average life (WAL) of the portfolio was 5.89 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 75.20% and 15.36% were used for the secured and unsecured loans respectively at the AA (sf) rating level.
• The Break-Even Default 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 the 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 Arranger Banca IMI S.p.A.

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 past due definition used by DBRS. Additional dynamic arrears data were provided by the Originator to determine a conservative average annual default rate. DBRS decided not to consider the dynamic arrears data based on number of loans, which are normally used to derive the base case annual default rate of the portfolio according to DBRS methodology, due to data integrity issues. DBRS opted to use dynamic delinquency data based on notional, adjusted with a multiplier to derive the comparable input data. Despite the above, 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 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 5.90%, a 10% and 20% increase on the base case PD.
• Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 55.52% at the AA (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 AA (low) (sf). A decrease in the recovery rate assumption by 20% would lead to a downgrade of the rating of 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 (high) (sf).

It should be noted that the interest rates and other parameters that would normally vary with the 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: María López
Initial Rating Date: 28 November 2014
Initial Rating Committee Chair: Carlos Silva

DBRS Ratings Limited
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London, EC3R 7AA
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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”