DBRS Confirms Rating on Padovana RMBS S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its rating of A (sf) on the Class A Notes issued by Padovana RMBS S.r.l. (the Issuer).

The confirmation of the rating on the Notes is based on the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of delinquencies and defaults, as of the March 2015 payment date.
-- Updated portfolio default rate, loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Incorporation of a sovereign-related stress component in the rating analysis to address the impact of macroeconomic variables on collateral performance given the Long-Term Foreign and Local Currency Issuer Rating of A (low) for the Republic of Italy.
-- Current available credit enhancement for the Notes to cover the expected losses at the A (sf) rating level.

The Issuer is a securitisation of Italian prime residential mortgages originated and serviced by Banca Padovana Credito Cooperativo (Banca Padovana or the Servicer). The transaction initially closed in July 2012 and the Issuer has subsequently used a paid-up amount of EUR 169 million to purchase additional portfolios from a previous transaction, Alta Padovana Finance S.r.l., which originally closed in 2009.

The Issuer is exposed to concentration risk as most of the loans are secured by properties located in the Veneto, Italy, region. Approximately 80% of the properties securing the loans are in the province of Padova. Given the geographic concentration and as a deviation from its RMBS methodology, DBRS has adjusted the market value decline assumptions for this transaction in order to account for potentially higher house price declines and distressed sale discounts.

The current 90+ delinquency ratio, as a percentage of the performing balance of the portfolio, was 1.05% as of March 2015. The current cumulative default ratio (as a percentage of the original balance) has been increasing since the transaction closed in July 2012 and reached the peak of 1.72% in March 2015.

The Class A Notes are supported by subordination of the rest of the classes and the Cash Reserve fund. Credit enhancement for the Class A Notes (as a percentage of the performing portfolio) has increased to 29.90% from 20.51% at closing in July 2012. This stems from the amortisation of the Class A Notes and an increase in the Cash Reserve fund.

The Reserve Fund was initially funded via a subordinated loan with EUR 11.75 million and is composed of two components: a Liquidity Reserve and a Cash Reserve fund.

The initial Cash Reserve fund amount was EUR 1.789 million and its balance increases as the liquidity component amortises.

The Liquidity Reserve required amount is 3.5% of the Class A Notes balance. As the Liquidity Reserve amortised down to EUR 6.74 million, the Cash Reserve balance has increased to EUR 5.01 million, therefore building credit enhancement to the Class A Notes. The Liquidity Reserve only supports shortfalls in senior fees and/or Class A interests while the Cash Reserve supports principal losses on the Class A. Additionally, should the cumulative net defaults rise above 3.0%, the excess spread will be trapped and will top up the Reserve Fund. Cumulative net defaults are currently 1.72%.

As of March 2015 payment date, 81% of the loans is yielding a floating coupon (6-months Euribor (67.10%), 1-month Euribor (11.36%), 3-months Euribor (2.16%) and ECB base rate (0.58%)) and the remaining portion of the pool (18.8%) is yielding a fixed coupon, whereas the Class A Notes pay a coupon indexed to 6-months Euribor. The transaction does not benefit from any hedge agreement to fully mitigate such mismatch.

The interest rate risk is partially mitigated as the Class A Notes rated will pay a capped interest rate of 6.3%. In an assumed rising interest rate scenario, the interest on the Class A Notes would be restricted to 6.3%, whereas the assets would pay a higher rate of interest.

BNP Paribas Securities Services SA, Milan Branch (the Italian Account Bank) holds the Collections account for the transaction, while BNP Paribas Securities Services SA, London Branch (the English Account Bank) holds the Investment accounts. The private rating of the Italian and English Account Banks complies with the threshold for the Account Bank, given the rating assigned to the Class A Notes, as described in the DBRS “Legal Criteria for European Structured Finance Transactions.”

Banca Padovana, which is currently the Servicer of the transaction, is under special administration from the Bank of Italy since May 2014. DBRS is monitoring the evolution of the situation and notes that the transaction benefits from the presence of a warm backup servicer and a substantial liquidity reserve.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology.” A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include payment reports provided by Securitisation Services S.p.A. (the Calculation Agent), servicer reports provided by the Servicer and data from the European DataWarehouse. DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments; however, this did not affect the rating analysis. Data checks were performed and DBRS did not apply additional cash flow stresses in its scenarios.

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 last rating action on this transaction took place on 9 July 2014 when DBRS confirmed the rating of A (sf) on the Class A Notes.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):
-- DBRS expected a lifetime base-case probability of default (PD) and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base-case assumptions and therefore have a negative effect on credit ratings.
-- The base-case PD and LGD of the current pool of mortgages for the Issuer are 9.63% and 20.89%, respectively. At the A (sf) rating level, the corresponding PD is 27.53% and the LGD is 48.87%.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption. For example, if the LGD increases by 50%, the rating of the Bonds would be expected to remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Bonds would be expected to remain at A (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating would be expected to remain at A (sf).

Bonds Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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: David Sanchez
Initial Rating Date: 8 July 2014
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Diana Turner

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.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- 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