DBRS Ratings Limited (DBRS) upgraded the following ratings of the bonds issued by BCC SME Finance 1 S.r.l. (the Issuer):
-- Class A1 Notes to AA (high) (sf) from AA (sf)
-- Class A2 Notes to AA (high) (sf) from AA (sf)
The ratings of the Class A1 and A2 Notes (the Class A Notes) address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The upgrades follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Updated probability of default (PD) rate, recovery rate and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at the AA (high) (sf) rating level.
BCC SME Finance 1 S.r.l. is a securitisation collateralised by a portfolio of secured and unsecured loans granted to Italian small and medium-sized enterprises (SMEs), entrepreneurs, artisans and producer families. Loans were originally granted by 28 Originators, 27 of which were Italian co-operative banks and also Mediocredito Trentino-Alto Adige S.p.A. – Investitionsbank Trentino-Süditrol A.G.
As of May 2018, one year since restructuring, one to three-month arrears represented 1.8% of the outstanding portfolio balance, the 90+ delinquency ratio was 1.5% and the cumulative default ratio was 0.0%.
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its PD and recovery assumptions on the outstanding portfolio to 46.0% and 55.0%, respectively, at the AA (high) (sf) rating level.
As of September 2018, the credit enhancement to the Class A Notes was 37.21%, up from 31.4% since the restructuring on December 2017. The CE of the Class A Notes considers the balance of the performing portfolio (excluding delinquencies greater than 90 days) and the cash reserve accounts.
The structure includes 28 non-amortising cash reserve accounts, each one funded at closing by the relevant Originator through a Limited Recourse Loan, with the current aggregate balance of EUR 20.7 million.
BNP Paribas Securities Services S.C.A., Milan branch (BNP Paribas, Milan) acts as Transaction Bank, Italian Paying Agent, Cash Manager, Principal Paying Agent and Agent Bank while BNP Paribas Securities Services S.C.A., London branch (BNP Paribas, London) acts as the English Transaction Bank. On the basis of DBRS’s private ratings of both BNP Paribas, Milan and BNP Paribas, London, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to the Transaction Bank and the English Transaction Bank to be consistent with the ratings of the Class A Notes.
J.P. Morgan Securities plc and JPMorgan Chase Bank, N.A. are the Swap Counterparty and Swap Guarantor, respectively. DBRS’s private rating of J.P. Morgan Securities Limited and its public rating of JPMorgan Chase Bank, N.A. are consistent with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.
However, as the rating provisions in place are not fully compliant with DBRS’s methodology in terms of collateral posting and replacement actions, following the same approach as at the restructuring, no credit was given to these contracts in the cash flow analysis.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “Rating CLOs Backed by Loans to European SMEs”. 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.
The sources of data and information used for these ratings include investor and servicer reports provided by Deutsche Bank AG and Cassa Centrale Banca - Credito Cooperativo del Nord Est S.p.A., and loan-level data from the 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. 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 this transaction took place on 6 December 2017, when DBRS confirmed its rating of the Class A1 Notes and assigned a new rating to the Class A2 Notes.
The lead analyst responsibilities for this transaction have been transferred to Francesco Amato.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):
-- PD Rates Used: base case PD of 20.8%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: base case recovery rate of 55.0% at the AA (high) (sf) stress level for the Class A Notes. There is a 10% and 20% decrease in the base case recovery rates for the Class A Notes, respectively. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.
DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Class A Notes at AA (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a downgrade of the Class A Notes to AA (sf).
For further information on DBRS historic 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: Francesco Amato, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 10 August 2012
DBRS Ratings Limited
20 Fenchurch Street
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
-- Derivative Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations
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 firstname.lastname@example.org.
This press release was amended on 11 June 2019 to correct a disclosure that mistakenly listed “Master European Structured Finance Surveillance Methodology" as the main methodology used to analyse this transaction. The PR was amended to state that the “Rating CLOs Backed by Loans to European SMEs” methodology was the principal methodology used.