DBRS Takes Rating Actions on Grecale RMBS 2015 S.r.l.

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the Class A, Class B and Class C Notes (the Notes) issued by Grecale RMBS 2015 S.r.l. (the Issuer):
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (low) (sf) from A (sf)
-- Class C Notes upgraded to A (sf) from BBB (high) (sf)

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the final legal maturity date in December 2067. The ratings on the Class B and Class C Notes address the ultimate payment of interest and principal on or before the final legal maturity date in December 2067.

The above-mentioned rating actions reflect an annual review of the transaction and are based on the following analytical considerations:
-- The overall portfolio performance, in terms of delinquencies and defaults, as of the September 2016 payment date.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the Notes.
-- The current available credit enhancement to the Notes to cover the expected losses assumed in line with the AAA (sf), AA (low) (sf) and A (sf) rating levels, respectively.

The Notes are backed by a portfolio of first lien mortgage loans originated by Unipol Banca S.p.A. (Unipol) and Banca SAI S.p.A. (merged by incorporation into Unipol in 2014). As of the September 2016 payment date, the portfolio consisted of 6,202 loans extended to 6,187 borrowers, with a pool factor of 83.86% one year after closing.The transaction has a low weighted-average unindexed current loan-to-value (WACLTV) of 53.48%, down from 54.40% at closing. The portfolio is well distributed across Italian regions. 45% of the properties securing the mortgage loans are located in the north of Italy, 25.56% in the centre and 29.43% in the south.

The transaction is performing within DBRS’s expectations. As of the September 2016 payment date, the 90+ delinquency ratio was at 0.86% of the performing collateral portfolio and no defaulted loans have been recorded so far given the definition of defaulted loans (defined as loans with at least 12 unpaid monthly instalments, or at least four unpaid quarterly instalments or at least two unpaid semi-annual instalments overdue).

The credit enhancement of the Notes has increased over the year, given the quick amortisation of the Class A Notes. The credit enhancement to the Class A Notes is provided by the subordination of the Class B, Class C and Class J Notes and is currently at 28.38%, up from 21% at closing. The credit enhancement to the Class B Notes is provided by the subordination of the Class C and Class J Notes and is currently at 18.83%, up from 13% at closing. The credit enhancement to the Class C Notes is provided by the subordination of the Class J Notes only and is currently at 14.07%, up from 9% at closing.

The transaction benefits from an amortising Cash Reserve which provides liquidity support to the Class A Notes and it is currently at its target level of EUR 13.959.556 (3% of the principal amount outstanding of the Class A Notes). Additionally, the Cash Reserve has a floor of EUR 5,735,000 (1% of the original amount of the Class A Notes).

BNP Paribas Securities Services, Milan Branch and London Branch are the Italian and English Account Banks for the transaction, respectively. The DBRS private ratings on the Account Banks comply with the Minimum Institution Rating for the account bank given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

J.P. Morgan Securitites plc (the Hedging Counterparty) and the Issuer entered into three hedging agreements (one fixed-to-floating and two basis swaps). The DBRS private rating of J.P. Morgan Securitites plc is above the First Rating Threshold as described in DBRS’s “Derivative Criteria for European Stuctured Finance Transactions” methodology (Derivative Criteria). Only the agreement for the fixed-to-floating swap complies with the Derivative Criteria.

The ratings assigned to the Class B and Class C Notes materially deviate from the higher ratings implied by the quantitative model. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative model that is a substantial component of a rating methodology; in this case, the ratings also reflect qualitative factors that are not precisely captured in the quantitative model, such as the absence of any evidence of defaults so far given the definition of defaulted loans and the short period since closing.

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

The sources of information used for this rating include investor and payment reports provided by Securitisation Services S.p.A., servicer reports provided by Unipol and loan by loan data from the European DataWarehouse GmbH.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was supplied with third party assessments at the Initial Rating. 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.

This is the first rating action since the Initial Rating Date.

The lead responsibilities for this transaction have been transferred to Antonio Di Marco.

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 to 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 9.09% and 9.57%, respectively. At the AAA (sf) rating level, the corresponding PD is 33.81% and the LGD is 33.63%, at the AA (low) (sf) rating level, the corresponding PD is 26.40% and the LGD is 27.58%, at the A (sf) rating level, the corresponding PD is 24.03% and the LGD is 23.83%.
-- 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 be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to be at AA (high) (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 be at AA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (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)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (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 (low) (sf)

Class C Notes 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 A (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 (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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 Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 27 November 2015

DBRS Ratings Limited
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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
-- 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.