DBRS Ratings Limited (DBRS) assigned an “A” (sf) rating to the Class A-2019 Notes issued by BPL Mortgages S.r.l., Series V (the Issuer), following a restructuring of the transaction that was put into effect today (the 2019 Restructuring).
In addition, DBRS downgraded its ratings on the Class A-2012 Notes and Class A-2016 Notes issued by BPL Mortgages S.r.l., Series V to “A” (sf) from A (high) (sf).
The downgrades follow a review of the transaction in the context of the 2019 Restructuring and are based on the following analytical considerations:
-- The amendments to the transaction in the context of the 2019 Restructuring;
-- The overall portfolio performance in terms of delinquencies levels and cumulative net losses, as of 27 January 2019;
-- Updated probability of default (PD), loss given default (LGD) and expected loss assumptions for the collateral pool;
-- The current available credit enhancement (CE) to the Class A-2012, Class A-2016 and Class A-2019 Notes (together, the Class A Notes) to cover expected losses assumed in line with the “A” (sf) rating levels;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested; and
-- The soundness of the legal structure and the presence of legal opinions that address the true sale of the assets to the trust and the non-consolidation of the Issuer, as well as consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
The ratings on the Class A Notes address the timely payment of interest and ultimate payment of principal payable on or before the maturity date in October 2058. The Class B-2012 and Class B-2019 Notes (together, the Class B Notes) are unrated.
The Issuer is an Italian securitisation collateralised by a portfolio of residential mortgage loans granted by Banco Popolare – Società Cooperativa (BP), which merged with Banca Popolare di Milano S.C.a.r.l. into Banco BPM SpA (Banco BPM) in January 2017. The transaction closed in December 2012 and, in October 2016, following the first restructuring, the Issuer acquired a subsequent portfolio from BP and sold all non-performing loans and loans eligible for the covered bonds programme. The acquisition of the subsequent portfolio was financed through the issuance of the Class A-2016 Notes, the proceeds of which were also used to partially redeem the Class B-2012 Notes.
BPL V acquired a further portfolio (Second Subsequent Portfolio) from Banco BPM with an aggregate principal balance of EUR 1,886.4 million and sold a pool of performing and non-performing loans for an amount of EUR 323 million back to Banco BPM.
To finance the purchase of the Second Subsequent Portfolio (the price of which has been partially set off with the amounts due by Banco BPM to BPL V for the repurchased loans), on 14 March 2019 BPL V issued a new Class A tranche (Class A-2019) for an amount of EUR 1,504,3 million and a new Class B tranche (Class B-2019) for an amount of EUR 69.7 million.
The cash reserve mechanism was also amended, switching from a non-amortising EUR 64.0 million target to 3% of the outstanding balance of Class A Notes, subject to a floor of EUR 40.0 million.
The aggregate balance of the Class A Notes is currently EUR 2,952.5 million and the balance of the Class B Notes is EUR 462.4 million. As of 27 January 2019, the EUR 3,707.1 million securitised portfolio consisted mainly of loans backed by residential properties (92.6% by outstanding loan balance) with loans backed by commercial, land or other types of properties representing the remaining 7.4%. The pool includes optional mortgages (24.3%) where the borrower has the option to switch from a fixed rate to a floating rate (or vice versa) every three years from the origination date. The portfolio also contains offset mortgages (1.3%), which allow the debtor to set off the instalment amount with any interest accrued on his/her current account.
As of 27 January 2019, the loans in the portfolio were performing.
DBRS conducted a loan-by-loan analysis on the pool and updated its base case PD and LGD assumptions on the outstanding portfolio to 14.6% and 36.3%, respectively.
As of March 2019, CE to the Class A Notes was 19.2%, down from 29.8% in July 2018. CE to the Class A Notes is provided by the subordination of the Class B Notes and overcollateralisation.
The transaction benefits from an amortising cash reserve, which is available to cover senior expenses shortfalls and missed interest payments on the Class A Notes. This account is currently funded at its EUR 69.7 million target level.
Banco BPM acts as Transaction Bank for this transaction, holding the cash reserve, while BNP Paribas Securities Services, London branch (BNP London) acts as Additional Transaction Bank, holding the collections and expenses account. Based on Banco BPM’s reference rating, which is one notch below DBRS’s Long-Term Critical Obligations Rating of BBB (high), DBRS’s private rating of BNP London, the downgrade provisions outlined in the transaction documents and the transaction structural mitigants, DBRS considers the risks arising from the exposure to both entities to be consistent with the ratings assigned to the Class A Notes.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”.
DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.
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 servicer reports provided by Banco BPM, investor reports provided by BNP Paribas Securities Services, Milan Branch, performance data and loan-by-loan 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 transaction restructuring in October 2016, 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 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 26 October 2018, when DBRS confirmed its ratings on the Class A-2012 Notes and Class A-2016 Notes at A (high) (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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- DBRS expected a base case PD and LGD for the portfolio 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 receivables are 14.6% and 36.3%, respectively. At the A (sf) rating level, the corresponding PD is 30.6% and the LGD 48.9%.
-- The Risk Sensitivity below illustrates the ratings expected for the Class A Notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the ratings of the Class A Notes would be expected to decrease to A (sf), all else being equal. If the PD increases by 50%, the ratings of Class A Notes would be expected to decrease to BBB (high) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the ratings of the Class A Notes would be expected to decrease to BB (high) (sf), all else being equal.
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (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 Limited are subject to EU and US regulations only.
Lead Analyst: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 24 December 2012
DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Rating CLOs Backed by Loans to European SMEs
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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 firstname.lastname@example.org.