DBRS Ratings GmbH (DBRS) confirmed its A (low) (sf) rating on the Class A Notes issued by UBI SPV Group 2016 S.r.l. (the Issuer).
The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in October 2070.
The confirmation follows an entire review of the transaction and is based on the following analytical considerations:
-- The amendments to the transaction that became effective on 25 January 2019.
-- No revolving termination events have occurred.
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the January 2019 payment date.
-- Updated base case assumptions, considering the updated quarterly performance data received by DBRS, and the probability of default (PD), recovery rate and expected loss assumptions considering the worst-case portfolio composition allowed under the eligibility criteria.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (low) (sf) rating level.
UBI SPV Group 2016 S.r.l. is a securitisation of first-lien residential mortgage loans originated in Italy by Unione di Banche Italiane S.p.A. (UBI Banca or the Originator) and several other Italian local banks, which have been incorporated into UBI Banca from October 2016. UBI Banca undertook the role of Master Servicer at the transaction closing and has replaced the acquired originators in their sub-servicing activities.
The transaction closed in August 2016 when UBI SPV Group 2016 S.r.l. issued a senior class of floating-rate notes and a junior class of additional return notes, namely the Class A Notes and Class B Notes. The transaction includes a revolving period, during which UBI Banca may sell subsequent portfolios to the Issuer, subject to certain conditions and limitations.
On 25 January 2019, the following amendments were made to the transaction:
-- Extension of the revolving period by three years until August 2022 (inclusive).
-- Change of certain concentrations limits. The changes reflect the trend of the Italian mortgage market, where the proportion of fixed-rate loans has increased over the last few years. After the transfer of any additional portfolio, the floating-rate pool should be at least 42% of the total pool (down from 52%), and the fixed- or optional-rate pool should not be higher than 46% (up from 36%). In addition, loans with a current interest rate indexed to EUR 1M, EUR 3M or EUR 6M should be at least 50% (down from 60%) and floating-rate loans or capped-rate loans (equal or above 10%) should be at least 48% (down from 58%). The weighted-average margin for floating-rate loans is 1.40% (down from 1.65%), whereas the weighted-average interest rate for fixed-rate loans is 2.75% (down from 3.00%).
-- Increase of the Cash Reserve balance to EUR 130 million, 6.25% of the Class A Notes (up from 4%).
-- Change of some renegotiations limits to provide more flexibility for UBI Banca to manage its portfolio. Spread reductions are limited to 25% of the original balance, up from 15%; whereas switch from fixed to floating and vice versa are limited to 5% of the original balance, up from 3%.
As of January 2019, loans that were two- to three-month arrears represented 0.3% of the outstanding portfolio balance, in line with 0.3% as of the latest rating action in July 2018. The 90+ delinquency ratio was 1.7%, up from 1.4% in July 2018. The cumulative default ratio was 1.9%, up from 1.4% in July 2018.
Based on the updated historical data provided by the originator and considering the observed performance, DBRS updated its base case PD assumption to 3.3%.
DBRS conducted a loan-by-loan analysis of the pool of receivables and, given that the transaction is still within its revolving period, its base case PD and loss given default (LGD) assumptions at 20.6% and 38.7%, respectively, continue to be based on a worst-case portfolio composition as per the replenishment criteria set forth in the transaction legal documents. At the A (low) (sf) rating level, the portfolio default and recovery assumptions applied in the analysis were 41.8% and 50.6%, respectively.
The credit enhancement available to the Class A Notes has remained stable at 24.8% over the past year. The current credit enhancement consists of the overcollateralisation provided by the outstanding collateral portfolio and the cash collateral set aside and not used to buy subsequent portfolios. The transaction benefits from an amortising cash reserve; the reserve, which is available to cover senior fees and interest shortfall on the Class A Notes, is currently at its target level of EUR 83.4 million and will be increased to EUR 130.4 million on 8 February 2019 through a subordinated loan granted by the originator.
UBI Banca acts as the account bank for the transaction. Based on the account bank reference rating of BBB (high), which is one notch below the DBRS Long-Term Critical Obligations Rating of UBI Banca of A (low), the downgrade provisions outlined in the transaction documents, and the structural mitigants, DBRS considers the risk arising from the exposure to the bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
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.
An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.
DBRS conducted a review on the amended agreements. A review of the other transaction legal documents was not conducted as they 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: https://www.dbrs.com/research/333487/rating-sovereign-governments.
The sources of data and information used for this rating include payment and investor reports provided by UBI Banca and loan-level data provided by the European DataWarehouse GmbH. The Originator provided historical performance of mortgage portfolio dating back to 2012.
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 this transaction took place on 27 July 2018, when DBRS confirmed its rating of the Class A Notes at A (low) (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”):
-- 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.
-- The base case PD and LGD of the current pool of loans for the Issuer are 20.6% and 38.7%, respectively.
-- 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 fall to BBB (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to BB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to BB (low) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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 GmbH are subject to EU and US regulations only.
Lead Analyst: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 11 August 2016
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Geschäftsführer: Detlef Scholz
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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
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Interest Rate Stresses 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 email@example.com.