DBRS Upgrades Class A Notes Issued by Abruzzo 2015 RMBS S.r.l.

DBRS Ratings Limited (DBRS) has today upgraded the rating on the Class A Notes Issued by Abruzzo 2015 RMBS S.r.l. (Abruzzo 2015) to AA (sf) from A (high) (sf).

Today’s rating action follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio’s performance in terms of delinquencies and defaults.
-- Portfolio’s default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AA (sf) rating level.

Abruzzo 2015, closed in August 2015, is a securitisation of a portfolio of Italian first-lien mortgage loans that were originated and serviced by Banca Tercas SpA (Banca Tercas) and Banca Caripe SpA (Banca Caripe). Banca Popolare di Bari S.C.p.A. (Banca Bari) assumed all the rights and obligations of Banca Tercas and Banca Caripe in Abruzzo 2015 following the merger in 2016.

PORTFOLIO PERFORMANCE
As of 30 April 2017, loans more than 90 days delinquent as a percentage of the outstanding non-defaulted collateral pool balance increased to 1.05% from 0.64% at the previous annual review. Loans more than 30 days delinquent were at 2.47%, similar to the previous review’s level. The cumulative loan default ratio was 0.23% of the portfolio balance at the transaction closing. The majority of the portfolio’s mortgaged properties are in regions that were struck by an earthquake in August 2016. DBRS notes that the loan arrears increased significantly right after the earthquake. Nevertheless, the arrears have since gradually declined to the pre-earthquake level. Moreover, there has been no noticeable slowdown in the borrower’s repayment activities.

PORTFOLIO ASSUMPTIONS
DBRS downgraded Italy’s sovereign rating on 13 January 2017 (please see the 17 January 2017 DBRS press release, “DBRS Downgrades Italy to BBB (high), Stable Trend”). Following the sovereign downgrade, DBRS has increased the base case two-year PD assumption to 3.86% from 3.44% in this review. DBRS conducted a loan-by-loan analysis on the portfolio data as of 30 April 2017. DBRS has updated the base-case PD and LGD assumptions to 8.49% and 11.50% from 10.11% and 13.43%, respectively, on the remaining outstanding portfolio, reflecting the reduced LTV following the continued deleveraging of the transaction and the further seasoning of the loans.

CREDIT ENHANCEMENT
The CE available to the Class A Notes has further increased to 21.97% as of the 31 May 2017 payment date as the transaction deleverages. The CE is provided through the subordinated Notes and overcollateralisation (OC). The transaction’s priority of payment allocates all cash remaining in the account after the payments of senior expenses, net swap amount, interest due on the Class A Notes and replenishment of the Liquidity Reserve as principal to the Class A Notes. Consequently, whenever there is a net excess spread in the transaction, the paydown of the Class A Notes principal balance will be faster than the collateral balance reduction, resulting in the buildup of the OC, which has further increased to EUR 13 million. The further buildup of OC and the increased CE prompted today’s rating upgrade on the Class A Notes.

Banca Bari is the servicer to the transaction. DBRS assessed the likely impact on the Class A Notes in the event of Banca Bari’s default. DBRS concludes that there is sufficient liquidity provided through the Liquidity Reserve deposited with the Account Bank. In addition, there is a backup servicing arrangement, an independent Cash Manager and an independent Calculation Agent in place to mitigate the payment disruption risks. The Liquidity Reserve provides liquidity support to the Class A Notes and is non-amortising. It is currently at its target amount of EUR 11.8 million.

BNP Paribas Securities Services, Milan Branch (BNPP Milan) is the Account Bank and the Cash Manager. Securitisation Services S.p.A. is the Calculation Agent and Zenith Service S.p.A. is the Backup Servicer to the transaction.

BNPP Milan’s DBRS private rating complies with the Minimum Institution Rating criteria, given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

J.P. Morgan Securities plc is the swap counterparty to the transaction and has a DBRS private rating that complies with the first rating threshold, given the rating assigned to the Class A Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. In addition, JPMorgan Chase Bank, N.A. (rated AA (low)/R-1(middle) by DBRS) is acting as the swap guarantor in the transaction.

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 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 the investor reports provided by Securitisation Services S.p.A. 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 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 the transaction took place on 11 August 2016, when DBRS upgraded the Class A Notes to A (high) (sf).

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):

-- The base case PD and LGD assumptions for the remaining collateral pool are 8.49% and 11.50%, respectively. At the AA (sf) rating level, the corresponding PD is 26.60% and the LGD is 30.89%.

-- 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 on 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 on 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 on the Class A Notes would be expected to be at AA (low) (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 (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 11 August 2015

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Servicers
-- 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.