DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the notes issued by 2017 Popolare Bari SME S.r.l. (the Issuer) as follows:
-- Series 2 Class A2 Notes at AAA (sf)
-- Series 2 Class M Notes at AA (low) (sf)
The rating on the Series 2 Class A2 Notes (the Class A2 Notes) addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date. The rating on the Series 2 Class M Notes (the Class M Notes) addresses the ultimate payment of interest and ultimate payment of principal on or before the legal final maturity date.
The confirmations 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 December 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 rated notes to cover the expected losses at their respective rating levels.
2017 Popolare Bari SME S.r.l. is a securitisation transaction collateralised by a portfolio of term loans originated by Banca Popolare di Bari S.C.p.A. (BPB) and Cassa di Risparmio di Orvieto S.p.A. (CRO and, together with BPB, the Originators) to small and medium-size enterprises and self-employed individuals based in Italy. The portfolio also contains loans originated by Banca Tercas S.p.A. and Banca Caripe S.p.A. prior to their merger into BPB in July 2016.
BPB (the Servicer) services the portfolio, with Zenith Service S.p.A. being appointed as Backup Servicer. The Bank of Italy placed BPB under special administration on 13 December 2019, which would constitute a servicer termination event according to the transaction documents. As of the date of this press release, no notice had been served to the transaction parties, namely the representative of the noteholders and the Backup Servicer, who has confirmed that no actions have been taken following the event. Nevertheless, the Servicer continues to service the portfolio with no disruption observed so far. DBRS Morningstar believes that the transaction benefits from features that are considered to adequately mitigate risks arising from a potential servicing disruption, but continues to closely monitor this situation.
The portfolio is performing within DBRS Morningstar’s initial expectations. As of the November 2019 cut-off, the 90+ delinquency ratio was 2.8%, slightly up from 2.7% as of the November 2018 cut-off. The cumulative gross default ratio was 4.6%, up from 0.0% in November 2018.
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool and updated its portfolio default rate and recovery assumptions on the outstanding portfolio to 68.5% and 33.8%, respectively, at the AAA (sf) rating level, and 62.0% and 37.5%, respectively, at the AA (low) (sf) rating level.
Overcollateralisation of the outstanding collateral portfolio as well as the cash reserve provide credit enhancement to the Class A2 Notes. As of the December 2019 payment date, credit enhancement to the Class A2 Notes was 82.0%, up from 62.9% as of the December 2018 payment date.
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement to the Class M Notes. As of the December 2019 payment date, credit enhancement to the Class M Notes was 70.9%, up from 52.9% as of the December 2018 payment date.
The transaction structure benefits from a nonamortising cash reserve, which provides liquidity support and is available to cover shortfalls on senior fees, expenses, and interest payments on the Class A2 Notes. The cash reserve is currently at its target level of EUR 12.5 million.
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 Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
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 ratings is the “Rating CLOs Backed by Loans to European SMEs” 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 these ratings include services reports and information provided by BPB, payment and investor reports provided by Securitisation Services S.p.A., information provided by the Backup Servicer, loan-level data provided by the European DataWarehouse GmbH, and information from other public sources such as Bank of Italy.
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 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 actions on this transaction took place on 23 October 2019, when DBRS Morningstar discontinued its AAA (sf) ratings on the Series 1 Class A1 and Series 2 Class A1 Notes (the Class A1 Notes) and on 28 February 2019, when DBRS Morningstar confirmed its AAA (sf) ratings on the Class A1 Notes and upgraded the ratings on the Class A2 and Class M Notes to AAA (sf) and AA (low) (sf), respectively, from AA (high) (sf) and A (low) (sf), respectively.
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):
-- PD used: Base case PD of 7.6%, a 10% increase and a 20% increase of the Base case PD.
-- Recovery Rates Used: Base Case recovery rate of 33.8% at the AAA (sf) stress level for the Class A2 Notes and a base case recovery rate of 37.5% at the AA (low) (sf) stress level for the Class M Notes, 10% and 20% decrease of the base case recovery rates. 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 AAA (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 A2 Notes at AAA (sf).
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 M Notes at AA (low) (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 M Notes at AA (low) (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, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 February 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 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.