DBRS Confirms Rating on Class A Notes Issued by Credico Finance 12 S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed the rating of AA (sf) on the Class A notes issued by Credico Finance 12 S.r.l. (the Issuer).

The confirmation of the rating on the Class A notes reflects an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults, as of the June 2017 payment date.
-- Portfolio default rate, loss given default (LGD) and expected loss assumptions for the remaining collateral portfolio.
-- Current available credit enhancement (CE) for the Class A notes to cover the expected losses at the AA (sf) rating level.

Credico Finance 12 S.r.l. is a securitisation of first-lien Italian residential mortgages originated and serviced by 35 co-operative banks (BCCs). The transaction follows the standard structure under Italian securitisation law and closed in August 2013.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS’s expectations. As of the June 2017 payment date, the 90+ delinquency ratio has been stable over the year and it is currently at 1.25% of the performing collateral portfolio. The current cumulative default ratio (as a percentage of the aggregate original portfolio balance) stands at 0.65%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated the PD and LGD assumptions on the remaining collateral pool. At the AA (sf) rating level, the PD and LGD assumptions are 19.77% and 18.08%, respectively.

CREDIT ENHANCEMENT
The CE available to the Class A notes has increased over the year as the transaction continues to deleverage. The current CE, consisting of subordination of the Class B1 to B35 notes and a portion of the Cash Reserve, stands at 25.29% of the performing collateral portfolio.
The transaction benefits from a Cash Reserve that is fully available to cover senior fees and interest, and is partially available to cover principal shortfall on the Class A notes. The Cash Reserve is non-amortising and is currently at its target level of EUR 41,658,000.

BNP Paribas Securities Services SCA, Milan Branch and BNP Paribas Securities Services SCA, London Branch are the Transaction Bank and English Transaction Bank for the transaction, respectively. The Transaction Bank holds the payment account, collection account, cash reserve accounts and the reserve account. The English Transaction Bank holds the investment account and principal amortisation reserve account for the Issuer. The DBRS private ratings of both entities comply 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: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction 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 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 reports provided by Accounting Partners S.r.l. 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 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 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 took place on 5 August 2016, when the Class A notes was upgraded to AA (sf) and removed from its Under Review with Positive Implications status.

The lead analyst responsibilities for this 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 transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a Base Case probability of default (PD) and loss given default (LGD) for the portfolio 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 pool of mortgages for the Issuer are 3.48% and 5.03%, respectively. At the AA (sf) rating level, the corresponding PD is 19.77% and the LGD is 18.08%.
-- 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, if the LGD increases by 50%, the rating of the Class A notes would be expected to be at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to be at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to be at AA (sf).

Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 12 August 2013

DBRS Ratings Limited
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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

-- Unified Interest Rate Model for European Securitisations
-- 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

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