DBRS Ratings GmbH (DBRS) downgraded its rating on the Class A Notes issued by 24-7 Finance S.r.l. (the Issuer) to A (sf) from A (high) (sf).
The downgrade follows a review of the transaction and is based on the following analytical considerations:
-- An amendment to the transaction signed on 2 August 2019 (the Amendment);
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the August 2019 payment date;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool;
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the A (sf) rating level.
The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date falling in August 2055.
24-7 Finance S.r.l. is a securitisation of residential mortgages originated and initially serviced by B@nca 24-7 S.p.A. (Banca 24-7), the internet banking subsidiary of Unione di Banche Italiane S.p.A. (UBI Banca). In July 2012, Banca 24-7 was consolidated in a statutory merger into UBI Banca, which replaced Banca 24-7 under all its roles in the transaction. The SPV issued two classes of floating-rate notes, namely Class A Notes and Class B Notes, in June 2008.
The following changes have been made to the transaction, effective since 2 August 2019:
-- A change in the definition of Eligible Institution, as described in the legal documentation, lowering the relevant DBRS replacement trigger by one notch;
-- New repurchase limits on the securitised portfolio, as described in the servicing agreement.
The downgrade was prompted by the Amendment. The rating on the Class A Notes at A (sf) is consistent with the updated downgrade provisions included in the transaction documentation as part of the Amendment, along with structural mitigants, and given the current reference rating of the main account bank UBI Banca at BBB (high), which is one notch below its DBRS Long-Term Critical Obligations Rating of A (low), as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of August 2019, loans that were two to three months in arrears represented 0.7% of the outstanding portfolio balance, while the 90+ delinquency ratio was 3.3%. The cumulative default ratio stood at 13.4%.
DBRS maintained its base case PD and LGD assumptions at 14.0% and 5.8%, respectively.
As of the August 2019 payment date, the CE available to the Class A Notes was 35.3%, up from 10.4% at the DBRS initial rating. The CE is currently provided by the outstanding performing portfolio balance.
The transaction benefits from a cash reserve, which would provide credit and liquidity support to the Class A Notes. However, the cash reserve is currently unfunded and below its target balance of EUR 2.5 million. The transaction also benefits from a liquidity reserve, which is available to cover expenses, fees, any amount due to the swap counterparty and interest shortfalls on the Class A Notes. The reserve is non-amortising and is currently at its target balance of EUR 35.1 million.
J.P. Morgan Securities plc acts as the swap counterparty for the transaction. DBRS's private rating of J.P. Morgan Securities plc is consistent with the first rating threshold, as described in DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.
The transaction structure was analysed in IntexCalc.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is the “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.
DBRS conducted a review of the amended transaction documents including the Servicing Agreement, the Intercreditor Agreement and the Cash, Administration and Agency Agreement. A review of any other transaction’s 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: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.
The sources of data and information used for this rating include the executed version of the amended documents provided by the legal counsel, an investor report provided by The Bank of New York Mellon SA/NV, Milan branch and a servicer report provided by UBI Banca.
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 purpose 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 5 July 2019, when DBRS confirmed the rating of the Class A Notes at A (high) (sf).
The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.
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):
-- 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 14.0% and 5.8%, 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 remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at A (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 remain at A (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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 GmbH are subject to EU and US regulations only.
Lead Analyst: Daniele Canestrari, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 27 July 2011
DBRS Ratings GmbH
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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.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria 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 firstname.lastname@example.org.