DBRS Assigns Ratings to Civitas SPV S.r.l. - Series 2017-1 (Civitas 3)

DBRS Ratings Limited (DBRS) has today assigned the following ratings to the Class A Asset Backed Partly Paid Notes and to the Class B Asset Backed Partly Paid Notes (together, the Rated Notes) issued by Civitas SPV S.r.l - Series 2017-1 (the Issuer):

-- EUR 98,188,031 Class A1 Notes at AA (sf)
-- EUR 98,188,031 Class A2 Notes at AA (sf)
-- EUR 21,963,112 Class B Notes at BBB (low) (sf)

The ratings assigned address the timely payment of interest and the Issuer’s obligation to repay principal on the Class A1 and A2 Notes up to the Paid-Up Amount sized at the closing date at EUR 98,188,031 for each Class A1 and Class A2 Note in accordance with transaction documents. The rating assigned to the Class B Notes addresses the ultimate payment of interest and the Issuer’s obligation to repay principal up to the Paid-Up Amount sized at the closing date at EUR 21,963,112. DBRS does not rate the EUR 40,050,381 Class C Notes. During the three-year revolving period, principal collections along with proceeds from increasing the Notes Paid-Up Amounts can be used to purchase subsequent portfolios, allowing the Notes to be increased to their Nominal Amounts subject to portfolio limits and eligibility criteria. The Nominal Amount for the Class A1 and Class A2 Notes is EUR 228 million each; EUR 51 million for the Class B Notes; and EUR 93 million for the Class C Notes.

The purchase of the Initial Portfolio will be funded via the issuance of the Class A1, Class A2 and the Class B Notes at their Notes Initial Instalments, with the cash reserve fully funded at EUR 5,458,479 via the issuance of the Class C Notes. The cash reserve is equal to 2.5% of the Rated Notes’ outstanding balance with a floor of 1.75% of the Paid-Up Amount of the Rated Notes. The Class A1 and Class A2 Notes benefit from 22.35% credit enhancement (% of the Initial Portfolio) at closing, and the Class B Notes benefit from 13.67% credit enhancement (% of the Initial Portfolio). It should be noted that credit enhancement is also available through the cash reserve to the extent available, as amortised amounts will form part of the available funds.

The Initial Portfolio consists of Italian residential mortgage loans originated by Banca Popolare di Cividale S.c.p.A. (Cividale), which is also the Servicer and Cash Manager. The back-up servicer facilitator is Securitisation Services S.p.A.

As of 12 July 2017, the Initial Portfolio consisted of 3,059 mortgage loans extended to 3,003 borrowers. The total balance of the Initial Portfolio amounts to EUR 252.9 million. The average loan per borrower is EUR 84,219. The weighted-average (WA) seasoning of the Initial Portfolio is 3.16 years with a WA residual maturity of 19.34 years. The WA loan-to-value of the Initial Portfolio is 63.2%. Almost the whole Initial Portfolio is located within the North of Italy.

Of the Initial Portfolio, 47.8% of the loans are floating rate, with the remaining 52.2% fixed-rate loans (of which 21.9% are fixed for life and 30.3% are fixed-rate loans with compulsory future switch to floating). Of the floating rate loans, 5.3% include an interest rate cap, normally between 5.95% and 6.95%. No swaps are in place to hedge the basis and fixed-to-floating interest rate risk.

The Account Bank provider is BNP Paribas Securities Services, Milan Branch. The DBRS private rating of the Account Bank complies with the threshold for the Account Bank, given the rating assigned to the Class A1 and Class A2 Notes.

The rating is based upon review by DBRS of the following analytical considerations:

-- The transaction capital structure, form and sufficiency of available credit enhancement and liquidity provisions.
-- The dynamic portfolio characteristic, assessed by building a worst-case portfolio based on the eligibility criteria and the current portfolio characteristics. The European RMBS Credit Model was used to estimate the expected probability of default (PD), loss given default (LGD) and expected loss of the worst-case portfolio.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and 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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 FISG S.R.L. In addition, DBRS received portfolio stratification tables and loan-level data related to a final mortgage portfolio as at July 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.

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 (sf) stress scenario of 44.38% and 46.89%, 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 low (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (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 A (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (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 BB (high) (sf).

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

Lead Analyst: Rehanna Sameja, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 19 July 2017

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.

-- 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.