DBRS Assigns Ratings to 2017 Popolare Bari RMBS S.r.l.

DBRS Ratings Limited (DBRS) has today assigned the following ratings to the Class A and Class B Residential Mortgage Backed Floating Rate Notes (together, the Rated Notes) issued by 2017 Popolare Bari RMBS S.r.l. (the Issuer):

-- EUR 597,210,000 Class A Notes (ISIN IT0005276958) at AA (sf)
-- EUR 58,264,000 Class B Notes (ISIN IT0005276966) at A (high) (sf)

The rating assigned to the Class A Notes addresses the timely payment and the ultimate payment of principal. The rating assigned to the Class B Notes addresses the ultimate payment of interest and principal. DBRS does not rate the EUR 76,428,000 Class J1 Notes (ISIN IT0005276974) and the EUR 16,088,000 Class J2 Notes (ISIN IT0005276982).

The purchase of the portfolio (the Portfolio) is funded via the issuance of Class A, Class B, Class J1 and Class J2 Notes; the cash reserve fully funded at EUR 19,664,220 via the issuance of Class J1 and Class J2 Notes. The cash reserve is equal to 3% of the Rated Notes’ outstanding balance with a floor of 1% of their initial balance.

The Class A Notes benefit from 18% credit enhancement (calculated as a percentage of the Portfolio) at closing, and the Class B Notes benefit from 10% credit enhancement. It should be noted that credit enhancement is also available through the cash reserve to the extent available, as released amounts of the reserve will form part of the available funds.

The Portfolio consists of Italian residential mortgage loans originated by Banca Popolare di Bari S.c.p.a. (BPB) and Cassa di Risparmio di Orvieto S.p.A. (CRO), which are also the Servicers of their respective sub-pools. BPB also acts as Master Servicer of the Transaction, while Zenith Services S.p.A. has been appointed as Back-Up Servicer.

As of 31 May 2017, the Portfolio consisted of 9,539 mortgage loans granted to 9,384 borrowers. The total balance of the Portfolio amounts to EUR 735 million (EUR 728 million as at the transfer date, 7 July 2017). The average loan balance is EUR 77,056. The weighted-average (WA) seasoning of the Portfolio is 3.7 years with a WA residual maturity of 17.7 years. The WA loan-to-value of the Portfolio is 50.2%. The Portfolio is mainly distributed in the Apulia (42.1%), Campania (21.1%) and Lazio (13.0%) regions.

The Portfolio is split between 64% floating- and 36% fixed-rate loans. Of the floating-rate loans, about 6% (of the total pool) include an interest rate cap, normally between 5% and 9%. The majority of floating-rate loans (75%) are indexed to three-month Euribor.

Four swap transactions are in place: two to hedge the basis risk, and two to hedge the fixed-floating interest rate risk. JP Morgan AG acts as swap counterparty. DBRS has given limited credit only to the fixed-floating swap transactions, as the swap documentation is not fully consistent with DBRS’s “Derivate Criteria for European Structured Finance Transactions” methodology.

The Account Bank is BNP Paribas Securities Services, Milan Branch. The DBRS private rating of the Account Bank 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.

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 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 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.

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 these ratings include historical performance, default, recovery and prepayment data, stratification tables and loan-level data provided by JP Morgan as arranger of the transaction.

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

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 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.

These ratings concern a newly rated financial instrument. These are the first DBRS ratings 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 29.41% and 25.30%, 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 (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (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 BBB (high) (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).

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 Laudani, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 31 July 2017

DBRS Ratings Limited
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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.