DBRS Confirms Ratings on Mars 2600 S.r.l. Series 5

DBRS Ratings Limited (DBRS) has today confirmed the ratings of the Class A1 Notes and Class A2 Notes (together, the Class A Notes) issued by Mars 2600 S.r.l. Series 5 (the Issuer) at AA (sf).

The confirmation of the ratings on the Class A Notes is based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies and defaults as at the October 2016 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A Notes to cover expected losses at the AA (sf) rating level.

Mars 2600 S.r.l. Series 5 is a securitisation of first-ranking Italian residential mortgages originated and serviced by Banca Sella S.p.A. (Banca Sella or the Servicer; rated BBB (low), Negative trend, by DBRS).

As at October 2016, two- to three-month arrears are 0.25%, down from 0.26% in July 2015. The 90+ delinquency ratio is equal to 0.23%, up from 0.17% in July 2015. The current cumulative default ratio is low at 0.87%, up from 0.34% in July 2015.

As of October 2016 payment date, credit enhancement to the Class A Notes was 25.6%, consisting of subordination of the Class D Notes.

The transaction benefits from a reserve fund that is available to cover senior fees and any interest shortfall on the Class A Notes. The reserve fund is currently at the target level of EUR 9.8 million. The reserve fund may start to amortise once the Class A Notes factor is below 50%, subject to further performance conditions.

According to the Servicing Agreement, Banca Sella is permitted to renegotiate the terms of the underlying mortgages up to a limit of 20% of the initial pool balance. At the July 2016 payment date, the limit on renegotiations was breached and has not yet been remedied by the Servicer. Cumulative renegotiations as at the October 2016 payment date are 26.41%. In DBRS’s opinion, potential concerns regarding the breach of the renegotiation limit are currently mitigated by the level of credit enhancement available to the Class A Notes and the otherwise strong performance of the transaction to date. During analysis, DBRS stressed its assumptions to account for potential further negotiations but assumed that such negotiations will remain in compliance with the other covenants.

BNP Paribas Securities Services SCA/Milan holds the Transaction Account for the transaction. The DBRS private rating of BNP Paribas Services SCA/Milan complies with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology.

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 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.
These may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include information provided by Securitisation Services S.p.A. (the Calculation Agent) and data from 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 this rating 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 25 November 2015, when DBRS confirmed the rating on the Class A Notes at AA (sf).

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 loss given default (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 3.80% and 1.58%, respectively. At the AA (sf) rating level, the corresponding PD is 20.17% and the LGD is 14.37%.
-- 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 Class A Notes would be expected to remain the same at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to remain the same at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain the same at AA (sf).

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)
For further information on DBRS historical 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.

Lead Surveillance Analyst: Andrew Lynch, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Senior Vice President
Initial Rating Date: 28 May 2014
DBRS Ratings Limited
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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
-- 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

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.