DBRS Ratings GmbH (DBRS Morningstar) confirmed its rating of the Class A notes at AAA (sf) and upgraded its rating of the Class B notes to AA (high) (sf) from A (high) (sf), issued by SME Grecale 2017 S.r.l. (SME Grecale 2017).
The rating of the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the final legal maturity date falling in March 2056. The rating of the Class B notes addresses the ultimate payment of interest and principal on or before the final legal maturity date.
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the September 2019 payment date.
-- Base case probability of default (PD) and updated default and recovery rates on the remaining receivables.
-- Current available credit enhancement to the Class A and Class B notes to cover the expected losses at their respective rating levels.
SME Grecale 2017 is a securitisation transaction collateralised by a portfolio of mortgage and non-mortgage loans to Italian small and medium-sized enterprises, entrepreneurs and self-employed individuals granted by Unipol Banca S.p.A. (Unipol). The transaction follows the standard Italian structure under the Italian Securitisation Law nr. 130 and closed in November 2017.
As of September 2019, loans that were two- to three-months in arrears represented 0.8% of the outstanding portfolio balance, whereas the 90+ delinquency ratio was 0.9%. The cumulative default ratio was 0.7% as of September 2019 payment date.
DBRS Morningstar conducted a loan-by-loan analysis on the outstanding pool of receivables and maintained the portfolio’s base case PD assumption at 4.5%. In addition, DBRS Morningstar updated the recovery rate base case on the portfolio to 49.0% and 13.5% for the secured and unsecured loans, respectively, at the AAA (sf) rating level. DBRS Morningstar also updated the recovery rate base case on the portfolio to 52.4% and 15.8% for the secured and unsecured loans, respectively, at the AA (high) (sf) rating level.
As of the September 2019 payment date, credit enhancement to the Class A notes was 70.0%, up from 52.5% at the last rating action on this transaction one year ago. Credit enhancement to the Class B notes was 50.2%, up from 36.7% one year ago, which prompted the upgrade rating action. Credit enhancement is provided by the overcollateralisation of the outstanding collateral portfolio balance. The reserve fund, which is currently at its target level of EUR 8.8 million, is available to pay senior fees, expenses and missed interest on the Class A notes.
BNP Paribas Securities Services SCA/Milan acts as the account bank for the transaction. Based on the private rating of BNP Paribas Securities Services SCA/Milan, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, 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.
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 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 these ratings include payment and investor reports provided by Zenith Service S.p.A., servicer reports provided by Unipol and loan-level data provided by the European DataWarehouse GmbH.
DBRS Morningstar did not rely upon third-party due diligence in order 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 these ratings 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 7 November 2018 when DBRS Morningstar upgraded its ratings on the Class A and Class B notes to AAA (sf) and A (high) (sf), respectively.
The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the base case):
-- Probability of Default Rates Used: Base case PD of 4.5%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 42.1% and 45.3% at the AAA (sf) and AA (high) (sf) rating levels, respectively, 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.
DBRS Morningstar 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 AAA (sf) and a confirmation of the Class B notes at AA (high) (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 AAA (sf) and a confirmation of the Class B notes at 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: 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 Candelas, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 24 October 2017
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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
-- Derivative 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 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.