DBRS Ratings GmbH (DBRS Morningstar) upgraded the rating on the Class A Notes issued by Credico Finance 16 S.r.l. (the Issuer) to AAA (sf) from AA (sf).
The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal by the legal final maturity date in December 2056.
The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the September 2019 payment date;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.
Credico Finance 16 S.r.l. is a securitisation of first lien residential mortgage loans, mainly distributed across Northern and Central Italy. The portfolio was originated and is currently serviced by 15 local cooperative and independent banks belonging to the network of ICCREA Banca S.p.A. (ICCREA). ICCREA acts as backup servicer and has been appointed to replace any of the servicer in case of disruption. The transaction closed in November 2016, when the SPV issued one senior class of floating-rate notes and 16 junior classes of floating-rate notes, namely the Class A Notes and Class B Notes.
The portfolio is performing within DBRS Morningstar’s initial expectations. As of July 2019, loans that were two to three months in arrears represented 0.2% of the outstanding portfolio balance, up from 0.1% in July 2018. The 90+ delinquency ratio was 0.4%, stable from July 2018. The gross cumulative default ratio stood at 0.0%, unchanged from July 2018.
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 7.7% and 4.4%, respectively.
As of the September 2019 payment date, credit enhancement to the Class A Notes was 23.2%, up from 19.7% as at the September 2018 payment date. Credit enhancement to the Class A Notes is provided by the overcollateralisation of the outstanding collateral portfolio balance and does not include the cash reserve.
The cash reserve is composed of 15 different cash reserves and has currently reached its floor level of EUR 16.9 million (3.0% of the initial outstanding balance of the Class A Notes). The reserve is available to cover any shortfall on senior fees, expenses and interest on the Class A Notes. Furthermore, if the available funds are not sufficient to cover the scheduled payment, each cash reserve can be used – after payment of senior fees and interest on Class A Notes – to repay principal on the Class A Notes, up to 80% of its target amount.
BNP Paribas Securities Services, Milan Branch acts as the account bank for the transaction. Based on the private rating of BNP Paribas Securities Services, Milan Branch, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar 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 Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
The transaction structure was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology”.
DBRS Morningstar 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include investor and servicer reports provided by Accounting Partners S.r.l. and loan-level data provided by the European DataWarehouse GmbH.
DBRS Morningstar did not rely upon third-party due diligence to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar 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 9 November 2018, when DBRS Morningstar upgraded the rating on the Class A Notes to AA (sf) from AA (low) (sf).
The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.
Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- DBRS Morningstar 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 7.7% and 4.4%, 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 on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to fall to AA (high) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
For further information on DBRS Morningstar 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: Daniele Canestrari, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 14 November 2016
DBRS Ratings GmbH
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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
-- Interest Rate Stresses for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
A description of how DBRS Morningstar 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.