DBRS Assigns Final Ratings to Credico Finance 15 S.r.l.

DBRS Ratings Limited (DBRS) has today assigned final ratings to the Class A1 and Class A2 Notes (Rated Notes) issued by Credico Finance 15 S.r.l. (the Issuer), as follows:

• EUR 50,000,000 Class A1 Asset Backed Floating Rate Notes due December 2053 (ISIN:IT0005070435): AA (high) (sf)
• EUR 113,900,000 Class A2 Asset Backed Floating Rate Notes due December 2053 (ISIN:IT0005070450): AA (high) (sf)

The transaction is a multi-originator cash flow securitisation collateralised by fourteen portfolios of bank loans to Italian small and medium-sized enterprises (SMEs), entrepreneurs, artisans and producer families, granted by fourteen unrated Italian cooperative banks (BCCs), as listed below (in brackets the contribution of each BCC to the aggregate of the fourteen portfolios):

• Banca di Credito Cooperativo di Alba, Langhe, Roero e del Canavese S.C. (22.8%)
• Credito Cooperativo Ravennate e Imolese Società cooperativa (14.0%)
• Banca di Credito Cooperativo di Gradara S.c.r.l. (9.2%)
• Banca di Credito Cooperativo Pordenonese sc (8.8%)
• Banca di Credito Cooperativo di Sesto San Giovanni – Società Cooperativa (7.0%)
• Cassa Rurale ed Artigiana di Castellana Grotte – Credito Cooperativo (6.3%)
• Banca di Credito Cooperativo di Ostra e Morro d’Alba società cooperativa (5.2%)
• Romagna EST Banca di Credito Cooperativo Società Cooperativa (5.1%)
• Credito Cooperativo Mediocrati Soc. Coop. per Azioni (4.9%)
• Banca di Ancona – Credito Cooperativo – Società Cooperativa (4.0%)
• Bancasciano Credito Cooperativo Soc. Coop. (3.5%)
• Credito Valdinievole – Banca di Credito Cooperativo di Montecatini Terme e Bientina Società Cooperativa (3.3%)
• Banca di Credito Cooperativo del Metauro Soc. Coop. (3.2%)
• Banca di Teramo di Credito Cooperativo S.c. (2.6%)

Initially, there will be fourteen separate waterfalls (one for each portfolio, originator and servicer) where each portfolio will support a portion of the Class A1 and Class A2 Notes on the basis of the contribution to the aggregate of fourteen portfolios. During this time, the Class A1 and Class A2 Notes will be pro-rata and pari passu with respect to interest payments, but Class A1 will rank senior to Class A2 with respect to principal payments. Upon the breach of certain conditions (“cross collateral events”), the fourteen separate waterfalls will collapse into a unique fully cross-collateralised waterfall, where Class A1 and Class A2 will be pro-rata and pari passu with respect to interest and principal payments.

The ratings on the Class A1 and Class A2 Notes address the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in December 2053. DBRS does not rate the Class B1, Class B2, Class B3, Class B4, Class B5, Class B6, Class B7, Class B8, Class B9, Class B10, Class B11, Class B12, Class B13 and Class B14 Notes.

The economic effect of the transfer of the portfolios from the BCCs to the Issuer took place on 3 November 2014 (the “Effective Date”) with an aggregate par balance of EUR 297.83 million consisting of 3,503 loans to 3,078 borrowers. As of this date, 1.9% of the aggregate of the portfolios was in arrears by less than 4 business days.

The rating of the Class A1 and Class A2 Notes is based upon DBRS’s review of the following items:
• The transaction structure, the form and sufficiency of available credit enhancement, and the portfolio characteristics:
o The transaction benefits from a high proportion of secured loans (51.0%) with relatively low loan-to-values (the weighted-average portfolio loan-to-value is 46.8%).
o The aggregate of the portfolios is extremely granular. The exposure to the largest one, ten and twenty borrowers represents 0.6%, 4.2%, and 7.0% of the aggregate of the portfolios, respectively. The transfer criteria provided for the exclusion of some NACE sectors, hence the exposure towards the DBRS industry “Building & Development” (20.7% of the portfolios) is limited when compared to other Italian SME transactions. Concentrations towards other industries are not relevant (only “Farming/agriculture” accounts for more than 10%). The geographical concentrations of each portfolio reflect the presence of the BCCs in its home region, while overall the transaction exhibits some concentrations towards low GDP per capita areas.
o Each of the BCCs will service its portfolio, while ICCREA Banca S.p.A. (ICCREA) will act as Back-Up Servicer with respect to all BCCs. ICCREA will also act as Operating Bank (i.e. collection account bank), a structure common to the multi-originator transactions sponsored by ICCREA.
o The transaction does not have mitigants dedicated to the set-off risk, which is higher than for other Italian SME transactions rated by DBRS. Nevertheless the risk was accounted for in the analysis.
o The credit enhancement for the Class A1 and A2 Notes is 47.2%, which DBRS considers to be sufficient to support the AA (high) (sf) rating.
• The presence of cash-trapping mechanisms and cross-collateral events aimed at limiting the leakage of excess spread for each of the separate waterfalls.
• The fourteen non-amortising cash reserves (CRs), sized at 4% of the initial balance of Class A1 and Class A2 Notes, which are available to cover senior expenses, interest and principal shortfalls on the Rated Notes on the relevant waterfall and then on all other waterfalls. However 2% of the outstanding balance of Class A1 and A2 Notes will exclusively be available to cover senior expenses and interest shortfalls on the Rated Notes.
• 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 A1 and Class A2 Notes will be made quarterly.
• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.
• 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 A1 and Class A2 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 5.15%.
• The assumed weighted-average life (WAL) of the portfolio was 5.22 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 64.53% and 14.60% were used for the secured and unsecured loans respectively at the AA (high) (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 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 BCCs, the Issuer and the Arrangers, ICCREA Banca S.p.A. and The Royal Bank of Scotland plc.

The vintage performance data provided did not match the definition that DBRS bases its analysis on. The historical performance data was based on the 365 days past due or “sofferenza” definition of default, which is different to the standard of 90 days past due definition used by DBRS. However, DBRS used additional dynamic arrears data provided by the BCCs to determine a conservative average annual default rate. DBRS decided not to consider the dynamic arrears data for Romagna EST Banca di Credito Cooperativo Società Cooperativa because of data integrity issues. DBRS opted to use static default data based on numbers 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 5.15%, a 10% and 20% increase on the base case PD.
• Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 40.05% at the AA (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 A1 and Class A2 Notes to AA (low) (sf). A decrease in the recovery rate assumption by 20% would lead to a downgrade of the Class A1 and Class A2 Notes to A (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 A1 and Class A2 Notes to A (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: 15 December 2014
Initial Rating Committee Chair: Carlos Silva, SVP European Structured Credit

DBRS Ratings Limited
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London, EC3R 7AA
United Kingdom

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”