DBRS Assigns Ratings to Berica Funding 2016 S.r.l.

DBRS Ratings Limited (DBRS) has today assigned ratings to the current outstanding Class A Notes, the Class B Notes and the Class C Notes (together, the Rated Notes) issued by Berica Funding 2016 S.r.l. (Issuer), as follows:

-- EUR 709,768,131 Class A Notes at AA (high) (sf)
-- EUR 119,200,000 Class B Notes at A (high) (sf)
-- EUR 79,800,000 Class C Notes at BBB (high) (sf)

This is a securitisation of residential mortgage loans sold by Banca Popolare di Vicenza S.c.p.a (BPVi) and Banca Nuova S.p.a. (BN), which are both part of the Banca Popolare di Vicenza group. BPVi is the master servicer for transaction. The transaction initially closed in January 2016.

As of 28 February 2017, the portfolio consists of 12,220 loans extended to 11,895 borrowers. The total balance of the portfolio amounts to EUR 1.076 billion. The average loan per borrower is EUR 88,075. The weighted-average (WA) seasoning of the portfolio is 5.65 years with a WA maturity of 23.78 years. Within the portfolio, 68.56% of the loans are floating-rate loans mainly linked to three-month Euribor, 6.81% are floating rate with cap loans mainly linked to three-month Euribor, 7.59% are optional loans (where the interest rate can switch) and 17.04% are fixed-rate loans. Approximately 65.7% of the properties securing the mortgage loans are located in the north of Italy (34.97% are located in the region of Veneto).

Credit enhancement based on the notes currently outstanding, for the Class A Notes is calculated as 35.12% and is provided by the subordination of the Class B Notes, Class C Notes and the Class J notes. Credit enhancement for the Class B Notes is calculated as 24.23% and is provided by the subordination of the Class C Notes and the Class J notes. The credit enhancement of the Class C Notes is 16.93%. The transaction benefits from an amortising cash reserve that is available to cover payments of senior fees and interest on the Rated Notes in the event of an interest shortfall. The cash reserve equals 3.0% of the Rated Notes, with a floor of 1.00% of the initial balance of the Rated Notes that has been funded through a limited recourse loan provided by BPVi. The documents include cumulative default triggers for which the interest on the Class B Notes and Class C Notes can be deferred below the principal payment of the Class A Notes in the priority of payments.

The Issuer has entered into a fixed-floating swap and basis swaps with JP Morgan Securities Plc to mitigate fixed and basis interest rate risk. The fixed-floating swap documents reflect DBRS’s “Derivative Criteria for European Structured Finance Transactions”; however, the basis swaps are not in full compliance. For the purpose of the cash flow analysis, DBRS has assumed that the basis risk in this transaction is unhedged. DBRS has modelled the interest rate using its Unified Interest Rate methodology.

The Account Bank, Calculation Agent and Principal Paying Agent is Elavon Financial Servicers Limited, UK Branch. The DBRS private rating of the Account Bank complies with the threshold for the Account Bank, given the rating assigned to the Class A Notes.

The rating of the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date, while the ratings of the Class B Notes and the Class C Notes address the ultimate payment of interest and principal on or before the legal final maturity date. DBRS based the ratings primarily on the following:

-- The transaction capital structure, form and sufficiency of available credit enhancement and liquidity provisions.
-- The static portfolio characteristic demonstrated by the current pool data. The European RMBS Credit Model was used to estimate the expected probability of default (PD), loss given default (LGD) and expected loss.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as replacement language in the transaction documents.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the notes.
-- Incorporation of a sovereign-related stress component in the stress scenarios as a result of the BBB (high) rating assigned by DBRS to the Republic of Italy.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.”

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

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 ratings include historical performance default, recovery and prepayment data and loan-level data provided by the arranger on behalf od Banca Popolare Di Vicenza SpA. In addition, DBRS received portfolio stratification tables and loan-level data related to a mortgage portfolio as of February 2017.

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

DBRS was supplied with one or more third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

This rating concerns a newly rated financial instrument. This is the first DBRS rating on this financial instrument.

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): in respect of the Class A Notes, the PD and LGD at the AA (high) (sf) stress scenario of 36.23% and 37.40%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS concludes the following impact on the Class A Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to AA (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to A (high) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).

DBRS concludes the following impact on the Class B Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).

DBRS concludes the following impact on the Class C Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (low) (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: Rehanna Sameja, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 7 April 2017

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.

-- Derivative Criteria for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations
-- 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.