DBRS Ratings GmbH (DBRS Morningstar) confirmed its rating of the Class A2 Notes issued by BCC SME Finance 1 S.r.l. (the Issuer) at AA (high) (sf).
DBRS Morningstar’s rating of the Class A2 Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in May 2060.
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Base case probability of default (PD) and updated default and recovery rates on the remaining receivables.
-- Current available credit enhancement to the Class A2 Notes to cover the expected losses at the AA (high) (sf) rating level.
BCC SME Finance 1 S.r.l. is a securitisation collateralised by a portfolio of secured and unsecured loans granted to Italian small and medium-size enterprises (SMEs), entrepreneurs, artisans, and producer families. Loans were originally granted by 28 originators, comprising 27 Italian cooperative banks and Mediocredito Trentino-Alto Adige S.p.A. – Investitionsbank Trentino-Süditrol A.G.
As of May 2019, loans that were one- to three-months in arrears represented 1.7% of the outstanding portfolio balance, the 90+ delinquency ratio was 2.1%, and the cumulative default ratio was 0.0%.
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool and updated its PD and recovery assumptions on the outstanding portfolio to 46.7% and 57.1%, respectively, at the AA (high) (sf) rating level.
As of May 2019, the credit enhancement to the Class A2 Notes was 46.1%, up from 37.2% since May 2018. The credit enhancement of the Class A2 Notes considers the balance of the performing portfolio (excluding delinquencies greater than 90 days) and the cash reserve accounts.
The structure includes 28 non-amortising cash reserve accounts, each one funded at closing by the relevant originator through a limited recourse loan, with the current aggregate balance of EUR 20.7 million.
BNP Paribas Securities Services S.C.A., Milan branch acts as transaction bank, Italian paying agent, cash manager, principal paying agent, and agent bank for this transaction while BNP Paribas Securities Services S.C.A., London branch acts as the English transaction bank. On the basis of DBRS Morningstar’s private ratings of both BNP Paribas, Milan branch and BNP Paribas, London branch, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar’s considers the risk arising from the exposure to the transaction bank and the English transaction bank to be consistent with the rating of the Class A2 Notes.
J.P. Morgan Securities plc and JPMorgan Chase Bank, N.A. are the Swap Counterparty and Swap Guarantor, respectively. DBRS Morningstar’s private rating of J.P. Morgan Securities Limited and its public rating of JPMorgan Chase Bank, N.A. are consistent with the First Rating Threshold defined in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.
However, as the rating provisions in place are not fully compliant with DBRS Morningstar’s methodology in terms of collateral posting and replacement actions, no credit was given to these contracts in the cash flow analysis.
DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.
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 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 Deutsche Bank AG and Cassa Centrale Banca - Credito Cooperativo del Nord Est S.p.A., and loan-level data from 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 not 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 25 November 2019 when DBRS Morningstar discontinued its rating of the Class A1 Notes. The last rating action on the Class A2 Notes was on 3 December 2018, when DBRS Morningstar upgraded its rating on the Class A2 Notes to AA (high) (sf) from AA (sf).
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):
-- PD Rates Used: Base case PD of 3.5%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 57.1% at the AA (high) (sf) stress level for the Class A2 Notes. There is a 10% and 20% decrease in the base case recovery rates for the Class A2 Notes. 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 A2 Notes at AA (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Class A2 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: Christian Aufsatz, Managing Director
Initial Rating Date: 10 August 2012; Class A2 Notes: 6 December 2017
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
-- Derivative Criteria for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- 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 firstname.lastname@example.org.