DBRS Takes Multiple Rating Actions on Alchera SPV S.r.l. following Transaction Restructuring

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the notes issued by Alchera SPV S.r.l. (the Issuer):

-- EUR 83,325,854 Class A–2013 Asset Backed Floating Rate Notes due 2048 downgraded to AA (low) (sf) from AAA (sf).
-- EUR 473,355,000 Series A–2017 Asset Backed Floating Rate Notes due 2048 assigned a new rating of AA (low) (sf)
-- EUR 91,350,000 Series M–2017 Asset Backed Floating Rate Notes due 2050 assigned a new rating of BBB (sf)

The transaction originally closed on 6 June 2013. Alchera SPV is a cash flow securitisation collateralised by a portfolio of bank loans to Italian small and medium-sized enterprises (SMEs), entrepreneurs, artisans and self-employed individuals that were granted by Banca Cassa di Risparmio di Savigliano S.p.A. (CR Savigliano), Cassa di Risparmio di Saluzzo S.p.A. (CR Saluzzo), and Banca Mediocredito del Friuli Venezia Giulia S.p.A. (MCFVG and together with CR Savigliano and CR Saluzzo, the Initial Originators).

The transaction originally consisted of EUR 419,000,000 of senior notes (Series A–2013), and EUR 240,450,000 of junior notes distributed in three Series of Notes (Series B1, Series B2 and Series B3), backed by a EUR 642.0 million portfolio (Initial Portfolio).

Following the transaction restructuring, CR Saluzzo, which is now merged into Banca Popolare dell’Emilia Romagna Group, has voluntarily withdrawn from the transaction and repurchased its portfolio. Banca Alpi Marittime Credito Cooperativo Carrú Societa Cooperativa per Azioni (BAM) and Cassa di Risparmio di Cento (CR Cento) have been incorporated as new Originators and together with CR Savigliano and MCFVG are the Originators. The Issuer has acquired a further portfolio (Subsequent Portfolio) from the originators (EUR 643.9 million as of 1 February 2017). After the acquisition, the total portfolio is 830.5 million with contributions from BAM, CR Savigliano, CR Cento and MCFVG representing 30.9%, 29.5%, 23.2% and 16.4% of the total portfolio, respectively.

To finance the purchase of the Subsequent Portfolio, Alchera SPV has issued six new classes of notes, EUR 473,355,000 of senior notes (Series A–2017), EUR 91,350,000 of mezzanine notes (Series M–2017) and EUR 205,820,000 of junior notes (Series B1-2017, Series B2-2017, Series B3-2017 and Series B4-2017). The Series A-2017 notes replicate exactly the same features of Series A-2013, notes given that the Series A–2013 and Series A–2017 Notes (Series A Notes) are pari passu and pro rata with respect to interest and principal payments. The Series M-2017 is subordinated to Class A, and amortisation is totally sequential.

The transaction is supported by two mechanisms for Reserve, four amortising Cash Reserves and four non-amortising Additional Cash Reserves with an aggregate balance of EUR 22.3 million which represents 4.0% of the Class A Notes.

As of 31 December 2016, the overall portfolio consisted of 4,400 loans extended to 3,597 borrowers with an aggregate par balance of EUR 830.45 million. The portfolio contained EUR 2.5 million (0.3%) of loans in arrears for more than 90 days and EUR 90.6 million (11.6%) of loans in arrears from one day to 90 days.

The ratings of the Rated Notes are based upon DBRS’s review of the following items:

-- The portfolio characteristics: as per DBRS’s industry classification, the portfolio exhibits a high concentration towards Building & Development, which represents 28.5% of the portfolio. DBRS believes that the risk stemming from the concentration is captured by the agency’s default assumptions at the AA (low) scenario (48.41%).
-- The portfolio has a weighted-average life (WAL) of 5.18 years, but the servicer-permitted variations allow increases of the loans’ maturity (up to five years for 20.0% of the portfolio). To account for such extensions, DBRS considered maturity extension up to five years for 10% of the portfolio, DBRS has estimated a portfolio WAL equal to 5.24 years.
-- The portfolio benefits from a relevant portion of secured loans (45.7% of the portfolio as per DBRS’s definition).
-- The portfolio is granular. The exposure to the largest one, ten and 20 borrowers represents 0.8%, 5.6% and 9.7% of the portfolio, respectively.
--The portfolio’s high geographical concentration which reflects the Originators’ presence in the wealthy northern Italian regions.
--The structure envisages four separate waterfalls, one for each portfolio, which are linked through the four Cash Reserves since inception of the deal; full cross-collateralisation will take place only when some conditions are met.
-- The presence of adequate cash-trapping mechanisms and cross-collateralisation events that limit the leakage of excess spread for each separate waterfall.
-- The Originators will each act as the Servicer for their loans in the Portfolio. Each Servicer has been appointed as Back-Up Servicer for the other Servicers. The transaction does not have mitigants dedicated to set-off and commingling risk. This was factored into DBRS’s analysis of the transaction.

-- The credit enhancement for the Class A Notes and Series M-2017 Notes is 35.7% and 22.0%, respectively.

DBRS determined the ratings on the Rated Notes as follows, as per the principal methodology specified below:
-- The annualised probability of default (PD) for the securitised portfolio, determined using the historical data supplied by the Originators and blended based on their weight in the portfolio; the PD was 4.28%.
-- The assumed WAL of the portfolio was 5.24 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 for Italy, the security level and the type of collateral. Recovery rates of 55.08% and 15.75% were used for the secured and unsecured loans, respectively, at the AA (low) (sf) rating level; 66.58% and 17.00%, respectively, at the BBB (sf) level.

-- The break-even 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 SMEs”. DBRS has
applied the principal methodology consistently and conducted a review of the transaction in accordance
with the principal methodology.

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 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 these ratings include the Arrangers Advisory & Finance S.A and StormHarbour Securities LLP and the Originators Banca Cassa di Risparmio di Savigliano S.p.A., Banca Mediocredito del Friuli Venezia Giulia S.p.A., Banca Alpi Marittime Credito Cooperativo Carrú Societa Cooperativa per Azioni, Cassa di Risparmio di Cento S.p.A.

DBRS did not rely upon third-party due diligence in order to conduct its analysis. DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

The vintage performance data provided did not match the definition that DBRS bases its analysis on. The historical performance data was based on the “sofferenza” definition of default, which is different than the standard of 90 days past due definition used by DBRS. Additional dynamic arrears data were provided by the Originators to determine a conservative average annual default rate. Despite the above, DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Further information on DBRS’s analysis of this transaction will be available in a rating report at http://www.dbrs.com or by contacting us at info@dbrs.com.

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 actions on this transaction concerning the Series A–2013 Notes took place on 1 August 2016 when DBRS upgraded the Series A-2013 Notes to AAA (sf) from A (high) (sf). The lead responsibilities concerning today’s rating actions on the Series A-2013 Notes have been transferred to María López.

The ratings on the Series A–2017 and Series M–2017 Notes concern newly issued financial instruments. These are the first DBRS ratings on these financial instruments.

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 rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the base case):

-- PD rates used: base-case PD of 4.28%, a 10% and 20% increase on the base-case PD.
-- Recovery rates used: base-case recovery rates of 33.73% and 39.66%, respectively, at AA (low) (sf) and BBB (sf) stress levels and a 10% and 20% decrease in the respective base-case recovery rate. Please note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

With respect to the Class A Notes, DBRS concludes that a hypothetical increase of the base-case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would each lead to a downgrade of Class A Notes to A (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would lead to a downgrade of the Class A Notes to A (high) (sf).

With respect to the Series M-2017 Notes, DBRS concludes that a hypothetical increase of the base-case PD by 20%, or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would each lead to a downgrade of the Series M-2017 Notes to BB (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would lead to a downgrade of Series M-2017 to BB (high) (sf).

It should be noted that the interest rates and other parameters that would normally vary with the rating level, including the recovery rates, were allowed to change as per the DBRS methodologies and criteria.

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.

Series A–2013 Notes
Initial Lead Analyst: Marcello Bonassoli, Vice President
Initial Rating Date: 6 June 2013
Initial Rating Committee Chair: Jerry van Koolbergen, Managing Director U.S. & European Structured Credit

Lead Surveillance Analyst: María López, Vice President
Most Recent Rating Update: 10 February 2017
Rating Committee Chair: Carlos Silva, Senior Vice President European Structured Credit

Class A–2017 Notes
Lead Surveillance Analyst: María López Vice President
Most Recent Rating Update: 10 February 2017
Rating Committee Chair: Carlos Silva, Senior Vice President European Structured Credit

Series M–2017 Notes
Lead Surveillance Analyst: María López VP
Most Recent Rating Update: 10 February 2017
Rating Committee Chair: Carlos Silva, Senior Vice President European Structured Credit

DBRS Ratings Limited
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The rating methodologies 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 CLOs and CDOs of Large Corporate Credit
-- Legal Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda

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