DBRS Downgrades Rating on Class A Notes Issued by BCC SME Finance 1 S.r.l. and Removes UR-Negative

DBRS Ratings Limited (DBRS) has today downgraded to AA (sf) from AA (high) (sf) the rating on the EUR 245,513,431.87 Class A Notes (the Notes) issued by BCC SME Finance 1 S.r.l. (the Issuer) and has removed its Under Review with Negative Implications (UR-Neg.) status.

The rating on the Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Legal Maturity Date in May 2060.

The transaction is a multi-originator cash flow securitisation collateralised by a portfolio of bank loans to Italian Small and Medium-sized Enterprises (SMEs), which were originated by 27 Italian cooperative banks and one corporate bank.

The rating action reflects a surveillance review of the transaction and concludes the UR-Neg. status of the rating. The Notes were placed UR-Neg. on 20 July 2016, following a downgrade of DBRS’s private rating on Deutsche Bank S.p.A. (Deutsche Bank SpA).

Deutsche Bank SpA acts as the transaction account bank for the Issuer. Following the downgrade of its DBRS private ratings, Deutsche Bank SpA did not meet the Minimum Institution Rating criteria given the ratings assigned to the Notes and as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology (the Legal Criteria). Consequently, DBRS placed the related ratings UR-Neg. The downgrade of the Notes and resolution of the UR-Neg. status follows the non-replacement of the transaction account bank by the issuer.

The rating action also reflects the following analytical considerations:
-- Portfolio Performance, in terms of delinquencies and defaults, as of the May 2016 payment date.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with the AA (sf) rating level for the Notes.

J.P. Morgan Securities plc and JPMorgan Chase Bank, N.A. are the Swap Counterparty and Swap Guarantor, respectively. The DBRS private rating of J.P. Morgan Securities Limited and the DBRS rating of JPMorgan Chase Bank, N.A. comply with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The transaction is performing in line with DBRS’s expectations. As of the May 2016 payment date, there were no cumulative defaults reported, as per the transaction definition, and delinquencies greater than 90 days were at 4.54% of the portfolio balance.

Credit enhancement has increased considerably as a result of the deleveraging of the Class A Notes, currently at 16.02% of their initial balance. Credit enhancement for the Class A Notes is provided by the subordination of the Class B Notes and the Reserve Account.

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)”. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction’s legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the 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 action include information provided by the Originators, the Issuer and their agents, and loan-level data from the European DataWarehouse GmbH.

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 impact the rating analysis.

DBRS considers the information available to it for the purposes of providing these ratings to be 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 1 August 2016, when the rating of the Notes was maintained UR-Neg.

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

To assess the impact of changing the transaction parameters 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 (PD) Rates Used: Base Case PD of 3.14%, and a 10% and 20% increase in the Base Case PD.
-- Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 17.89% at the AA (sf) stress level, and a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that either a hypothetical increase of the base PD by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would produce model results suggesting a confirmation of the Notes at their current rating. A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the Recovery Rate by 10% would also lead to model results suggesting a confirmation of the current rating.

For further information on DBRS historic default rates published by the European Securities and Markets Authority (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: Simon Ross
Initial Rating Date: 10 August 2012
Initial Rating Committee Chair: Jerry Van Koolbergen

Lead Surveillance Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry Van Koolbergen, Managing Director

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies 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
-- Rating CLOs Backed by Loans to Small and Medium-Sized European Enterprises (SMEs)
-- Rating CLOs and CDOs of Large Corporate 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
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.