DBRS Ratings GmbH (DBRS) upgraded the notes issued by BPL Mortgages S.r.l. (the Issuer), in the context of the seventh securitisation transaction of the Issuer (BPL VII) as follows:
-- Class A - 2014 upgraded to AA (low) (sf) from A (sf)
-- Series A2 - 2016 upgraded to AA (low) (sf) from A (sf)
-- Class B - 2014 upgraded to A (sf) from BBB (high) (sf)
-- Series B2 - 2016 upgraded to A (sf) from BBB (high) (sf)
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the February 2019 payment date.
-- Portfolio default rates, recovery rates and expected loss assumptions on the remaining receivables.
--The current credit enhancement (CE) available to the rated notes to cover the expected losses at their respective rating levels.
The ratings on the Class A – 2014, Series A2 – 2016 (together, the Class A Notes), Class B – 2014 and Series B2 - 2016 Notes (together, the Class B Notes) address the timely payment of interest and ultimate payment of principal payable on or before the Maturity Date in November 2054.
BPL VII is a securitisation collateralised by a portfolio of secured and unsecured loans to Italian small and medium-sized enterprises (SMEs), entrepreneurs, artisans and producer families that were granted by Banco Popolare – Società Cooperativa (BP) or one of its regional banks. In January 2017, BP and Banca Popolare di Milano S.C.a.r.l. merged into Banco BPM SpA (Banco BPM).
The transaction closed in June 2014. Following a transaction restructuring in February 2016, BPL VII acquired a second portfolio from BP and sold all loans in arrears by 57 days or more comprised in the pool as of 25 January 2016. The second portfolio included both newly originated performing loans and loans from BPL Mortgages S.r.l. – Series VI, the Issuer’s previous SME CLO transaction that was unwound on 19 February 2016. The second portfolio’s acquisition was financed through the new issuance of Series A2 - 2016, Series B2 - 2016 and Series C2 - 2016.
The transaction was restructured again in 2018. During the 2018 restructuring, BPL VII acquired another EUR 3,716.4 million portfolio from Banco BPM and Banca Popolare di Milano S.p.A. (BPM) through funds from the increase of some of the issued notes. The Issuer also sold all defaulted loans, loans in arrears by 51 days or more and loans eligible for the Banco BPM covered bonds programme back to Banco BPM at par (EUR 579.2 million).
On 1 April 2019, DBRS transferred the ongoing coverage of the ratings assigned to the Issuer to DBRS Ratings GmbH from DBRS Ratings Limited. The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.
Both DBRS Ratings Limited and DBRS Ratings GmbH are registered with the European Securities and Markets Authority (ESMA) under Regulation (EC) No. 1060/2009 on Credit Rating Agencies, as amended, and are registered Nationally Recognized Statistical Rating Organization (NRSRO) affiliates in the United States and Designated Rating Organization (DRO) affiliates in Canada.
PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The portfolio is performing within DBRS’s expectations. As of February 2019, loans more than 90 days in arrears represented 0.7% of the outstanding performing portfolio collateral balance. The cumulative gross default ratio stood at 7.2%.
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its default rate and recovery assumptions. The base case probability of default (PD) has been maintained at 5.4%.
The CE available to the Class A and B Notes continues to increase as the transaction deleverages, which was a main driver behind DBRS’s rating upgrades. CE to the Class A Notes is at 53.4% (35.9% in April 2018), and the CE to the Class B Notes is at 44.8% (29.5% in April 2018). The CE of the rated notes considers the balance of the performing portfolio and the cash reserve. The cash reserve is at its target amount 6.6% of the Class A and Class B Notes balance and subject to a EUR 100.0 million floor.
BNP Paribas Securities Services, London branch acts as transaction bank and BNP Paribas Securities Services, Milan branch is the paying agent for the transaction. Based on the private ratings of both institutions, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to the account bank and paying agent to be consistent with the ratings assigned to the notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
Banco BPM acts as cash account bank and holds the reserve fund. As the cash account bank reference rating of BBB – one notch below the DBRS Long-Term Critical Obligations Rating of Banco BPM at BBB (high) – is below the Minimum Institution Rating given the ratings assigned to the Class A Notes as described in the "Legal Criteria for European Structured Finance Transactions" methodology”, DBRS did not give credit to the reserve fund in its analysis of the Class A Notes.
The transaction structure was analysed in Callisto, DBRS’s proprietary cash flow engine.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “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 reports and information provided by Banco BPM 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 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 latest rating actions on this transaction took place on 12 April 2018, when DBRS downgraded the Class A Notes to A (sf) from AA (high) (sf) and the Class B Notes to BBB (high) (sf) from A (high) (sf), following the aforementioned restructuring of the transaction.
The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.
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”):
--Probability of Default Rates Used: base case PD of 5.4%, a 10% and 20% increase on the base case PD.
--Recovery Rates Used: Base case Recovery Rate of 31.7% at the AA (low) (sf) stress level, and a 10% and 20% decrease in the base case Recovery Rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels. The base case recovery rate at the A (sf) stress level is 46.5%.
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 confirmation of the Class A Notes at AA (low) (sf) and to a confirmation of the Class B Notes at A (sf). A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% would also lead to a confirmation of the Class A Notes at AA (low) (sf) and to a confirmation of the Class B Notes at A (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: Alfonso Candealas, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 30 June 2014
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Ratings issued and monitored by DBRS Ratings GmbH are noted as such on the DBRS website; however, the language and related statements in previously published press releases in respect of the relevant ratings will not be changed retroactively and will remain as part of DBRS’s historical record. The ratings issued and monitored in the European Union are marked as such in their respective rating tables. As part of this transfer, these markings will remain unchanged on all active ratings related to the Issuer.
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating CLOs Backed by Loans to European SMEs
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Rating CLOs and CDOs of Large Corporate Credit
-- 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 email@example.com.