DBRS Ratings GmbH (DBRS) upgraded its rating on the Class A Series 2 notes (the Class A Notes) to A (high) (sf) from A (sf), issued by Valconca SPV S.r.l. (SME) (the Issuer).
The rating addresses the timely payment of interest and ultimate payment of principal on or before the final maturity date in October 2060.
The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the April 2019 payment date.
-- Base case probability of default (PD), and updated recovery rates on the remaining receivables.
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the respective rating level.
Valconca SPV S.r.l. (SME) is a cash flow securitisation collateralised by a portfolio of term loans originated by Banca Popolare Valconca S.p.A. (BPV or the Originator) to small and medium-sized enterprises (SMEs) and self-employed individuals based in Italy.
As of April 2019, loans that were two to three months in arrears represented 0.13% of the outstanding portfolio balance. The 90+ delinquency ratio was 1.39% and the cumulative gross default ratio stood at 0.27%.
DBRS conducted a loan-by-loan analysis on the remaining pool of receivables and updated its portfolio default rate and recovery rate assumptions on the outstanding portfolio to 54.6% and 43.8%, respectively, at the A (high) (sf) rating level.
CE to the Class A Notes is provided by the overcollateralisation of the outstanding collateral portfolio balance and includes the cash reserve and the Class J Notes. As of the April 2019 payment date, CE to the Class A Notes was 34.9%, up from 30.0% at the DBRS initial rating. The transaction benefits from an amortising cash reserve currently at EUR 2.7 million, which is equal to 2.0% of the outstanding balance of the Class A Notes. It is available to cover senior fees, expenses and any interest shortfall on the Class A Notes. The increased CE prompted the upgrade on the Class A Notes.
BNP Paribas Securities Services, Milan branch acts as the Account Bank for the transaction. Based on the private rating of the Account Bank, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to the Account 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 “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 this rating include investor reports provided by Securitisation Services S.p.A., servicer reports provided by BPV and loan-level data provided by 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 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.
This is the first rating action since the initial rating date on 25 July 2018, when DBRS assigned its A (sf) rating to the Class A Notes.
The lead analyst responsibilities for this transaction have been transferred to Ettore Grassini.
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 ratings, 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 5.5%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 43.8% at the A (high) (sf) stress level, for the Class A Notes a 10% and 20% decrease in the base case recovery rate.
DBRS concludes that an hypothetical increase of the base case PD by 20% would lead, ceteris paribus, to a confirmation of the Class A Notes at A (high) (sf), while an hypothetical decrease of the Recovery Rate by 20% would lead, ceteris paribus, to a downgrade of the Class A Notes to A (sf). A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% would lead to a confirmation of the Class A Notes at A (high) (sf).
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Ettore Grassini, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 25 July 2018
DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
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
-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Interest Rate Stresses for European Structured Finance Transactions
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- 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.