DBRS Confirms Ratings on Three Credico Finance Transactions

DBRS Ratings Limited (DBRS) has today confirmed the ratings of the Class A Notes in three Italian residential mortgage-backed securities transactions, Credico Finance 8 S.r.l. (CF 8), Credico Finance 9 S.r.l. (CF 9) and Credico Finance 10 S.r.l. (CF 10), as follows:

-- Class A Notes in CF 8 confirmed at AAA (sf)
-- Class A Notes in CF 9 confirmed at AAA (sf)
-- Class A Notes in CF 10 confirmed at AAA (sf)

Today’s rating actions follow an annual review of the transactions and are based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults as of the April 2017 payment dates.
-- Updated portfolio default rate (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement available to the Class A Notes in all three transactions to cover the expected losses at the AAA (sf) rating level.

All three transactions closed between 2011 and 2012 and are securitisations of portfolios of Italian mortgage loans. Each transaction’s mortgage portfolio was originated and serviced by multiple Italian co-operative banks. ICCREA Banca S.p.A. is the appointed Backup Servicer on all three transactions.

PORTFOLIO PERFORMANCE
The performances of the mortgage portfolios in all three transaction are within DBRS’s expectations. As of April 2017, loans more than 90 days delinquent as a percentage of the outstanding performing portfolio balance were at 1.02%, 1.05% and 0.85% for CF 8, CF 9 and CF 10, respectively, and all in line with the levels 12 months ago. The cumulative defaulted loans as a percentage of the original portfolio balances at the transaction closings have increased slightly from last year and remain low at 1.07%, 0.47% and 0.41% for CF 8, CF 9 and CF 10, respectively.

PD AND LGD ASSUMPTIONS
At the AAA (sf) rating level, the updated PD and LGD are respectively 26.29% and 15.36% for CF 8, 26.58% and 16.24% for CF 9, and 27.22% and 21.06% for CF 10.

CREDIT ENHANCEMENT AVAILABLE
The credit enhancement (CE) available to the Class A Notes in all three transactions has increased as the transactions continue to deleverage. The CE increased to 44.42% for CF 8, to 35.21% for CF 9, and to 38.75% for CF 10. CE is provided through subordinated notes and a liquidity facility in CF 8 and CF 9, and through subordinated notes and a cash reserve in CF 10.

BNP Paribas Securities Services, Milan Branch is the Transaction Bank and the Italian Paying Agent in all three transactions, and BNP Paribas Securities Services, London Branch is the English Transaction Bank and the Principal Paying Agent. DBRS’s private ratings on the BNP Paribas Securities Service, Milan Branch and London Branch meet the Minimum Institution Rating criteria, given the AAA (sf) rating assigned to each transaction’s Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

JP Morgan Chase Bank, N.A. is the swap counterparty in CF 8, and J.P. Morgan Securities plc is the swap counterparty in CF 9, with JP Morgan Chase Bank, N.A. as the swap guarantor. Both entities’ DBRS public or private ratings are above the First Rating Threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology.”

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

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

Other methodologies referenced in this transactions 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 the rating actions include the investor reports provided by Deutsche Bank Trust & Securities Services and Accounting Partners S.r.l. and the loan-by-loan data from European Data Warehouse GmbH.

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

At the time of the initial rating DBRS was not supplied with 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 these ratings to be of satisfactory quality.

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

The last rating actions on these transactions took place on 28 April 2016, when DBRS confirmed the AAA (sf) ratings and removed the Under Review with Negative Implications status on the Class A Notes of CF 8 and CF 9 and upgraded the rating on the Class A Notes of CF 10 to AAA (sf) from AA (sf).

The lead analyst responsibilities for these 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 transactions parameters on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):

-- DBRS expected a lifetime Base Case PD and 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 CF 8 pool of mortgages are 2.83% and 2.84%, respectively. At the AAA (sf) rating level, the corresponding PD is 26.29% and the LGD is 15.36%.

-- The Base Case PD and LGD of the CF 9 pool of mortgages are 3.08% and 1.13%, respectively. At the AAA (sf) rating level, the corresponding PD is 26.58% and the LGD is 16.24%.

-- The Base Case PD and LGD of the CF 10 pool of mortgages are 4.06% and 2.73%, respectively. At the AAA (sf) rating level, the corresponding PD is 27.22% and the LGD is 21.06%.

-- 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, with regard to CF 8, if the LGD increases by 50%, the rating on 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 on the Class A Notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to be at AAA (sf).

CF 8 Class A Notes 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 AAA (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 AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

CF 9 Class A Notes 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 AAA (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 AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

CF 10 Class A Notes 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 AAA (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 AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (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: Vito Natale, Senior Vice President

CF 8
Initial Rating Date: 13 April 2011

CF 9
Initial Rating Date: 11 July 2011

CF 10
Initial Rating Date: 25 April 2012

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 these transactions 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.