DBRS Confirms Ratings on Three Credico Finance Transactions

DBRS Ratings Limited (DBRS) confirmed the following ratings on three Credico Finance transactions:

Credico Finance 8 S.r.l. (CF8):
-- Class A Notes at AAA (sf)

Credico Finance 9 S.r.l. (CF9):
-- Class A Notes at AAA (sf)

Credico Finance 10 S.r.l. (CF10):
-- Class A Notes at AAA (sf)

The ratings on the Class A Notes address timely payments of interest and ultimate payment of principal on or before the respective final maturity dates.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies and defaults, as of the latest payment date for each transaction;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining collateral portfolios;
-- Current available credit enhancement (CE) to the rated Notes to cover the expected losses at the AAA (sf) rating level.

CF8, CF9 and CF10 are securitisations of Italian residential mortgages originated by multiple Italian co-operative banks. The transactions closed between February 2009 and April 2012. The pools are static and serviced by the Italian originators with ICCREA Banca S.p.A. acting as the Back-Up Servicer of the transactions. As of February 2018, the CF8 portfolio totalled EUR 101.2 million with a pool factor of 24.8%, the CF9 portfolio totalled EUR 265.5 million with a pool factor of 41.7%, and the CF10 portfolio totalled EUR 711.8 million with a pool factor of 45.0%.

PORTFOLIO PERFORMANCE
The portfolios are performing within DBRS’s expectations. The loans delinquent more than 90 days have slightly increased in CF8 and CF9 over the past year while they decreased in CF10. The respective ratios stood at 1.5%, 1.1%, and 0.8% of the outstanding collateral pool of CF8, CF9 and CF10 as of the April 2018 payment dates. The cumulative default ratios were 1.1%, 0.6%, and 0.4% computed on the original portfolio balances of CF8, CF9 and CF10, respectively.

PORTFOLIO ASSUMPTIONS
DBRS conducted loan-by-loan analyses on the remaining collateral pools of receivables and updated its PD and LGD assumptions as follows:
-- In CF8, the base case PD and LGD are 3.0% and 2.0%, respectively,
-- In CF9, the base case PD and LGD are 3.2% and 0.8%, respectively,
-- In CF10, the base case PD and LGD are 3.5% and 5.0%, respectively.

CREDIT ENHANCEMENT
The CEs available to the rated Notes have continued to increase as the transactions continue to deleverage. The CEs consist of the overcollateralisation provided by the outstanding collateral portfolios and include the Liquidity Reserve in CF8 and the difference of the Cash Reserve and 4% of the outstanding Class A Notes at the preceding payment date in CF9 and CF10. The CEs increased as follows:
-- In CF8, the CE was 54.3% as of the April 2018 payment date increasing from 44.4% as of the April 2017 payment date;
-- In CF9, the CE was 38.3% as of the April 2018 payment date increasing from 32.1% as of the April 2017 payment date;
-- In CF10, the CE was 43.3% as of the April 2018 payment date increasing from 35.7% as of the April 2017 payment date.

The Liquidity Reserve of CF8 is available to pay senior fees and expenses, missed interest on the Class A Notes and provides credit support to the rated Notes. As of the April 2018 payment date, the available commitment amount of CF8 was EUR 16.4 million. The reserves of CF9 and CF10 are available to pay senior fees and expenses, missed interest on the Class A Notes and partially provide credit support to the rated Notes. As of the April 2018 payment date, the Available Commitment Amount of CF9 was EUR 26.5 million and the Cash Reserve of CF10 was at its target level of EUR 79.2 million.

BNP Paribas Securities Services SCA/Milan is the Account Bank with BNP Paribas Securities Services SCA/London being appointed as the English Account Bank for all three Credico Finance transactions. The DBRS private ratings on the Account Banks are consistent with the Minimum Institution Rating, given the rating assigned to the Class A Notes of each transaction, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

JPMorgan Chase Bank, National Association and J.P. Morgan Securities PLC are the respective Swap Counterparties for CF8 and CF9. Both Swap Counterparties DBRS public and private ratings are consistent with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. CF10 is unhedged.

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 transaction in accordance with the principal methodology.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in the transactions 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 the CF8 rating include investor reports provided by Deutsche Bank, servicer reports provided by Accounting Partners S.r.l. and loan-by-loan level data from the European DataWarehouse GmbH. The sources of data and information used for the CF9 and CF10 ratings include investor and servicer reports provided by Accounting Partners S.r.l. and loan-by-loan level data from the European DataWarehouse GmbH.

DBRS did not rely upon third-party due diligence in order to conduct its analyses. At the time of the initial rating DBRS was not supplied with third-party assessments. However, this did not impact the rating analyses.

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 actions on these transactions took place on 27 April 2017, when DBRS confirmed the ratings on the Class A Notes of CF8, CF9 and CF10 at AAA (sf).

The lead analyst responsibilities for these transactions have been transferred to Ilaria Maschietto.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the “Base Case”):

-- DBRS expected a lifetime base case PD and LGD for the pool 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.

-- In CF8, the base case PD and LGD of the pool of mortgages are 3.0% and 2.0%, respectively. At the AAA (sf) rating level, the corresponding PD is 26.5% and the LGD is 12.8%.
-- In CF9, the base case PD and LGD of the pool of mortgages are 3.2% and 0.8%, respectively. At the AAA (sf) rating level, the corresponding PD is 26.7% and the LGD is 14.0%.
-- In CF10, the base case PD and LGD of the pool of mortgages are 3.5% and 5.0%, respectively. At the AAA (sf) rating level, the corresponding PD is 26.9% and the LGD is 19.9%.
-- 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 remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf).

CF8: 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).

CF9: 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).

CF10: 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).

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: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
CF8 Initial Rating Date: 13 April 2011
CF9 Initial Rating Date: 11 July 2012
CF10 Initial Rating Date: 25 April 2012

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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
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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

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.