DBRS Confirms Ratings of Popolare Bari NPLS 2016 S.r.l.

DBRS Ratings Limited (DBRS) confirmed the ratings on the Class A and Class B Asset-Backed Floating-Rate Notes due December 2036 (the Notes) issued by Popolare Bari NPLS 2016 S.r.l. (the Issuer) as follows:

-- EUR 126,500,000 Class A at BBB (high) (sf)
-- EUR 14,000,000 Class B at B (high) (sf)

The rating confirmation reflects the stable performance of the transaction since its issuance on 12 August 2016 (the Issue Date).

Popolare Bari NPLS 2016 S.r.l. was the first public Italian non-performing loan securitisation transaction executed since 2007. The transaction envisaged the issuance of Class A (approximately 26.4% of total gross book value (GBV), Class B (approximately 2.9% of GBV) and Class J (approximately 2.1% of GBV) at Issue Date. The Notes are backed by a mixed pool of Italian non-performing loans originated by Banca Popolare di Bari S.p.A. (BPB or the Seller), Banca Tercas S.p.A. and Banca Caripe S.p.A. In July 2016, Banca Tercas S.p.A. and Banca Caripe S.p.A. were merged into BPB. BPB sold to the Issuer a portfolio of non-performing loans for a total gross book value equal to approximately EUR 480 million. The securitised portfolio consists of both secured and unsecured non-performing loans. The secured loans are collateralised by residential properties, commercial properties (industrial, office, retail and hotel) and land. The loans comprised in the portfolio defaulted between 2000 and 2015, with the majority of the loans being classified as defaulted between 2012 and 2014 (approximately 59.3% of initial GBV). Most of the secured loans included in the portfolio are backed by properties primarily concentrated in the southern regions of Italy, which typically have a longer bankruptcy and settlement process. In its analysis, DBRS assumed that all loans are disposed through the auction process, which generally has the longest resolution timeline.

As of the June 2017 Investor Report, the transaction outstanding principal balance of Class A and Class B is equal to EUR 115.4 million and EUR 14.0 million, respectively. The transaction structure is fully sequential and the Class A current balance amortised ca. 8.0% since issuance. Class B, which represents mezzanine debt, will not be repaid until Class A is repaid in full, and Class J does not receive any issuer available funds until Class A and Class B are repaid in full. The current aggregated transaction balance is EUR 138.4 million.

The portfolio is serviced by Prelios Credit Servicing S.p.A. (Prelios or PRECS). At issuance, PRECS prepared the business plan assuming a judicial procedure for each borrower. The servicer’s initial business plan, as reported in the most recent semi-annual servicing report dated 19 June 2017, assumed cumulative gross disposition proceeds (GDP) of EUR 13.8 million from the period between the closing date and Q2 2017. Based on the same report, the servicer’s reported actual cumulative GDP collections equal to EUR 16.7 million, which is 17.5% higher than initially expected.

According to the most recent semi-annual servicing report, the servicer reports an updated business plan, which estimates increased cumulative GDP collections compared to its initial business plan. Specifically, the expected cumulative GDP for the next 18 months (to Q4 2018) is EUR 50.6 million, or 10.3% more than the initial expectation of EUR 45.8 million for the same period. The reported servicing fees for the first semester were equal to EUR 672,210 and in line with the servicing fees as per the initial business plan. Since closing and because of the disposal of residential and commercial properties as well as unsecured loans, the total GBV of the portfolio has been reduced by EUR 17.8 million, or by 3.7% compared with the initial GBV. The most recent reported GBV as at May 2017 is equal to EUR 462.0 million (EUR 479.8 million at issuance). The portfolio continues to be mainly concentrated in the same regions as at issuance: the region of Abruzzo still has the largest concentration of assets in the pool being 27.8% by GBV (27.0% at issuance). As reported in the semi-annual servicing report of June 2017, the cumulative collection ratio and net present value cumulative profitability ratio are 176.3% and 168.0%, respectively. A subordination event would occur if any of the two ratios is lower than 90%.

The transaction benefits from a Cash Reserve of EUR 4.2 million fully funded at closing through a limited recourse loan and an Additional Cash Reserve of EUR 2.5 million funded with collections. According to the most recent Payment Report of June 2017, the outstanding balance of the Cash Reserve amount is EUR 4.0 million, which has been reduced in proportion to the transaction’s collateral reduction, as the Cash Reserve Target amount is equal to 3% of the Class A and Class B principal outstanding amount. The Additional Cash Reserve current balance remains at EUR 2.5 million.

The ratings are based on DBRS’s analysis of the projected recoveries of the underlying collateral; the historical performance and expertise of the servicer, Prelios; the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses; the cap agreement with J.P. Morgan Securities plc; and the transaction’s legal and structural features. DBRS’s BBB (high) (sf) and B (high) (sf) ratings assume a portfolio aggregated GDP haircut of 24.03% and 17.45%, respectively, to Prelios’s initial business plan for the portfolio. The transaction’s final maturity date is in December 2036.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: Rating European Non-Performing Loans Securitisations.

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 Prelios Credit Servicing S.p.A and Securitisation Services S.p.A.

DBRS did not rely upon third-party due diligence in order to conduct its analysis. However, this did not impact the rating 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.

This is the first rating action since the Initial Rating Date (12 August 2016)

The lead analyst responsibilities for this transaction have been transferred to Jorge Lopez Herguido.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of the 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”):

-- Recovery Rates Used: Cumulative Base Case Recovery Amount of EUR 157,078,463 at the BBB (high) stress level, a 5% and 10% decrease of the Cumulative Base Case Recovery Rate.
-- Recovery Rates Used: Cumulative Base Case Recovery Amount of EUR 170,665,375 at the B(high) stress level, a 5% and 10% decrease of the Cumulative Base Case Recovery Rate.
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class A notes to BBB (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a downgrade of the Class A Notes to B (high) (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class B Notes to B (low) (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would each lead to a downgrade of the transaction to CCC (sf) for the Class B Notes.

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: Jorge Lopez Herguido, Financial Analyst, European Structured Finance
Rating Committee Chair: Christian Aufsatz, Managing Director, European Structured Finance
Initial Rating Date: 12 August 2016

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 European Non-Performing Loans Securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- European CMBS Rating and Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Legal Criteria for European Structured Finance Transactions
-- 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