DBRS Confirms Rating on the Class A Notes Issued by BPM Securitisation 3 S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its AAA (sf) rating on the Class A Notes issued by BPM Securitisation 3 S.r.l. (the Issuer).

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of April 2017;
-- Updated portfolio default rate, recovery rate and expected loss assumptions for the remaining collateral pool; and
-- The current available credit enhancement (CE) to the Class A Notes to cover expected losses assumed in line with the AAA (sf) rating level.

The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in January 2057.

The Issuer is a securitisation collateralised by a portfolio of secured and unsecured loans to Italian small- and medium-sized enterprises (SMEs), entrepreneurs, artisans and producer families that were granted by Banca Popolare di Milano S.C.a.r.l., but also by Banca di Legnano S.p.A. and Cassa di Risparmio Alesandria S.p.A. (both banks have been merged into BPM in 2013). In January 2017, Banca Popolare di Milano S.C.a.r.l. and Banco Popolare – Società Cooperativa merged into Banco BPM SpA.

The transaction closed in September 2014 and in June 2016, following the transaction restructuring, the Issuer acquired a Second Portfolio of newly originated performing loans financed through the increase in the principal balance of the Class A Notes and Class Z Notes by an aggregate amount of EUR 648.8 million.

PORTFOLIO PERFORMANCE
As of the April 2017 payment date, the overall portfolio consisted of 8,598 loans with an aggregate principal balance of EUR 746.1 million (which excludes EUR 13.6 million of loans classified as defaulted).

Loans in arrears between 31 days and 60 days and loans in arrears between 61 days and 90 days represented 1.2% and 1.3% of the principal outstanding balance of the portfolio, respectively, while delinquencies greater than 90 days were 0.5%. The cumulative gross default ratio was 1.2%, with cumulative recoveries of 25.8%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its portfolio default and recovery assumptions on the outstanding portfolio to 54.1% and 43.3%, respectively, at the AAA (sf) rating level. The portfolio lifetime default rate has deteriorated since the last rating action in July 2016 reflecting DBRS’s downgrade of the Republic of Italy’s Long-Term Foreign Currency rating to BBB (high) with a Stable trend on 13 January 2017 (see DBRS press release entitled, “DBRS Downgrades Italy to BBB (high), Stable Trend”).

CREDIT ENHANCEMENT
As of April 2017, CE to the Class A Notes was 59.9%, up from 41.6% in July 2016. The CE of the Class A Notes considers the balance of the performing portfolio (excluding delinquencies greater than 90 days and defaulted loans) and the Cash Reserve. Up to the April 2017 payment date, the Cash Reserve has always been at its target level, set at 2.2% of the Class A Notes balance, subject to a EUR 3.3 million floor.

BNP Paribas Securities Services, Milan branch acts as Account Bank for the transaction. DBRS’s private rating on BNP Paribas Securities Services, Milan branch 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 to the rating 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 surveillance section of 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 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 data and information used for this rating include servicer reports provided by Banco BPM SpA, investor reports provided by Deutsche Bank S.p.A. and loan-by-loan data from the European DataWarehouse 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 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 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.

The last rating action on this transaction took place on 21 July 2016, when DBRS confirmed the rating on the Class A Notes at AAA (sf).

The lead responsibilities for this transaction have been transferred to Joana Seara da Costa.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Probability of Default (PD) rates used: Base Case PD of 4.7%, a 10% and 20% increase on the Base Case PD.
-- Recovery Rates used: Base Case recovery rate of 43.3% at AAA (sf) stress level and a 10% and 20% decrease in the Base Case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS concludes that either a hypothetical increase of the Base Case PD by 10%, a hypothetical decrease of the recovery rate by 10%, or a scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would lead to a confirmation of the Class A Notes rating at AAA (sf). Either a hypothetical increase of the Base Case PD by 20%, a hypothetical decrease of the recovery rate by 20% or a scenario combining both an increase in the PD by 20% and a decrease in the recovery rate by 20% would lead to a confirmation of the Class A Notes rating at 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: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 1 October 2014

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 this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Structured Finance Surveillance Methodology

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