DBRS Upgrades and Confirms Notes on Six Berica Italian RMBS Transactions

DBRS Ratings Limited (DBRS) took rating actions on six Berica Italian residential mortgage-backed securities (RMBS) transactions as follows:

Berica 10 Residential MBS S.r.l. (Berica 10):
-- Class A1 Notes confirmed at AAA (sf)

Berica ABS S.r.l. (Berica ABS):
-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)

Berica ABS 2 S.r.l. (Berica 2):
-- Class A2 Notes confirmed at AAA (sf)

Berica ABS 3 S.r.l. (Berica 3):
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)

Berica ABS 4 S.r.l. (Berica 4):
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from A (high) (sf)
-- Class C Notes upgraded to A (high) (sf) from A (low) (sf)

Berica Funding 2016 S.r.l. (Berica 2016):
-- Class A Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class B Notes upgraded to AA (sf) from A (high) (sf)
-- Class C Notes upgraded to A (high) (sf) from BBB (high) (sf)

The ratings of the following notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date: Berica 10 Class A1 Notes, Berica ABS Class A1 and Class A2 Notes, Berica 2 Class A2 Notes, Berica 3 Class A Notes, Berica 4 Class A Notes and Berica 2016 Class A Notes.

The ratings of the following notes address the ultimate payment of interest and principal on or before the legal final maturity date: Berica 3 Class B Notes, Berica 4 Class B and C Notes and Berica 2016 Class B and C.

Today’s rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies, defaults and losses.
-- Portfolio probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pools.
-- The credit enhancement (CE) available to the rated notes to cover the expected losses at their respective ratings.

All six transactions are securitisations of Italian residential mortgage loans originated by Banca Popolare di Vicenza S.p.A. (BPVi) and Banca Nuova S.p.A. Both entities were the Servicers of the portfolio. Following the administrative compulsory liquidation order of BPVi by the Bank of Italy, Intesa SanPaolo S.p.A. (Intesa SanPaolo) acquired BPVi, including the shareholdings in Banca Nuova S.p.A., and assumed all the transaction responsibilities without any disruptions on 26 June 2017.

PORTFOLIO PERFORMANCE
DBRS notes a recent increase in the loans in arrears across all transactions except Berica ABS. Loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance, excluding defaulted loans, increased to 1.6% from 1.1% for Berica 10, remained at 2.6% for Berica ABS, increased to 1.9% from 1.4% for Berica 2, increased to 3.5% from 2.2% for Berica 3, increased to 3.1% from 2.0% for Berica 4 and increased to 2.7% for Berica 2016. The cumulative default rate as a percentage of the collateral pool balance at closing also increased across all transactions: 2.0% for Berica 10; 4.9% for Berica ABS; 3.0% for Berica 2; 2.5% for Berica 3; 1.8% for Berica 4; and 0.9% for Berica 2016.

DBRS maintained the PD and LGD assumptions on the remaining collateral pools for all six transactions. At the base case, B (sf) level, PD and LGD are 6.3% and 3.1%, respectively, for Berica 10; 7.8% and 9.8% for Berica ABS; 4.4% and 4.1% for Berica 2; 7.3% and 8.3% for Berica 3; 12.3% and 12.5% for Berica 4; and 12.5% and 16.8% for Berica 2016.

CREDIT ENHANCEMENT
The CE available to all rated notes has continued to increase as the transactions continue to deleverage. The sources of CE are the subordinated notes and the overcollateralisation. The transactions’ Priority of Payments distribute any remaining cash after the allocation of fee payments and the interests due on the notes as principal to the most senior notes outstanding. When the remaining cash is more than the amortisation on the collateral pools (the difference is the excess spread amount), the overcollateralisation builds up. The overcollateralisation increased to EUR 41.7 million for Berica 10, EUR 65.7 million for Berica ABS, EUR 42.7 million for Berica 2, EUR 30.0 million for Berica 3, EUR 26.8 million for Berica 4 and EUR 5.4 million for Berica 2016.

The CE available to each rated notes was 50.0% for Berica 10 Class A1 Notes as of the February 2018 payment date; 79.0% and 61.7% for Berica ABS Class A1 and A2 Notes, respectively, as of the December 2017 payment date; 52.8% for Berica 2 Class A2 Notes as of the February 2018 payment date; 45.0% and 27.3% for Berica 3 Class A and B Notes, respectively, as of the December 2017 payment date; 38.4%, 26.5%, and 19.1% for Berica 4 Class A, B, and C Notes, respectively, as of the December 2017 payment date; and 41.5%, 28.8%, and 20.3% for Berica 2016 Class A, B, and C Notes, respectively, as of the January 2018 payment date. The increase in the CE prompted today’s rating confirmations and upgrades.

As the ratings on Berica 3 Class B Notes, Berica 4 Class B and C Notes and Berica 2016 Class B and C Notes address the ultimate payment of interest and principal on or before the legal final maturity date, DBRS considered additional factors for its rating decisions. These include, but are not limited to the portfolio performance, the Notes’ seniority in the structure, and the likelihood and the timing of any interest deferrals and their ultimate repayments.

Intesa SanPaolo is rated BBB (high)/R-1 (low) with a Long Term Critical Obligations Rating (COR) of “A” by DBRS. Following the improvement of the Servicer rating, DBRS did not apply additional stress in the cash flow analysis assuming the default of the Servicer in this review.

Deutsche Bank AG, London Brach (DB London) and Barclays Bank PLC, Milan Branch (Barclays Milan) act as the Account Banks for Berica 10, Berica ABS, Berica 2 and Berica 3. DB London’s reference rating, being one notch below its private DBRS Long-Term COR, and Barclays Milan’s private DBRS Issuer and Senior Debt ratings, along with an “A” replacement rating trigger, meet the Minimum Institution Rating criteria given the AAA (sf) rating assigned to the senior notes in each transaction, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Similarly, Elavon Financial Services DAC, U.K. Branch (Elavon UK) is the Account Bank for Berica 4 and Berica 2016. Elavon UK has a private DBRS Issuer and Senior Debt rating, along with an “A” replacement rating trigger in Berica 4, that meet the Minimum Institution Rating criteria given the AAA (sf) rating assigned to the Class A Notes. For Berica 2016, as a result of having the Account Bank replacement rating trigger at A (low), DBRS considered the structural mitigants present in the transaction and applied additional stresses in the cash flow analysis and was satisfied with upgrading the Berica 2016 Class A Notes to AAA (sf).

J.P. Morgan Securities plc (JPM Securities) is the swap counterparty with JPMorgan Chase Bank, N.A. (rated AA/R-1 (high) by DBRS) as the swap guarantor to all six transactions. JPM Securities’ DBRS private rating meets the rating requirement given the rating assigned to the senior notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transactions 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 actions.

Other methodologies referenced in the 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings for Berica 10, Berica ABS, Berica 2 and Berica 3 include the investor report from Deutsche Bank AG, London Branch and the loan-by-loan data from European DataWarehouse GmbH. The sources of data and information used for these ratings for Berica 4 and Berica 2016 include the investor report from U.S. Bank Global Trust Services and the loan-by-loan data from 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 for Berica 10, Berica ABS, Berica ABS 2, and Berica ABS 3. DBRS was supplied with third-party assessments for Berica 4 and Berica 2016. 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.

The last rating action on Berica 10 took place on 6 April 2017, when DBRS confirmed the AAA (sf) rating on the Class A1 Notes. The last rating action on Berica ABS took place on 6 April 2017, when DBRS confirmed the AAA (sf) rating on Class A1 and A2. The last rating action on Berica 2 took place on 6 April 2017, when DBRS confirmed the AAA (sf) rating on Class A2 Notes. The last rating action on Berica 3 took place on 6 April 207, when DBRS confirmed the AAA (sf) rating on the Class A Notes and upgraded the rating on the Class B Notes to AA (sf). The last rating action on Berica 4 took place on 6 April 2017, when DBRS upgraded Class A, B, and C Notes to AAA (sf), A (high) (sf) and A (low) (sf), respectively. The last rating action on Berica 2016 took place on 7 April 2017, when DBRS assigned ratings of AA (high) (sf), A (high) (sf), and BBB (high) (sf) to Class A, B, and C, respectively.

The lead analyst responsibilities for Berica 2016 have been transferred to Kevin Ma.

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):

-- For Berica 10, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 28.4% and 26.3%, respectively.

-- For Berica ABS, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 31.0% and 34.6%, respectively.

-- For Berica 2, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 27.4% and 24.5%, respectively.

-- For Berica 3, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 29.9% and 33.0%, respectively. At the AA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 24.3% and 28.9%, respectively.

-- For Berica 4, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 40.74% and 37.7, respectively. At the AA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 34.4% and 33.7%, respectively. At the A (high) (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 31.1% and 29.8, respectively.

-- For Berica 2016, at the AAA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 39.2% and 39.2, respectively. At the AA (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 33.1% and 35.6%, respectively. At the A (high) (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 29.9% and 32.0, respectively.

-- The Risk Sensitivity overview below illustrates the rating 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 Berica 10 Class A1 Notes would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A1 Notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A1 Notes would be expected to be at AAA (sf).

Berica 10:
Class A1 Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Berica ABS:
Class A1 Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class A2 Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Berica 2:
Class A2 Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Berica 3:
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B 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)

Berica 4:
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class B 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 A (high) (sf)

Class C Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

Berica 2016:
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class B 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 A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

Class C Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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, Vice President
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Dates: Berica 10: 5 December 2011; Berica ABS: 20 February 2012; Berica 2: 17 December 2012; Berica 3: 16 June 2014; Berica 4: 10 July 2015; Berica 2016: 7 April 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.

-- 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
-- Interest Rate Stresses 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.