DBRS Ratings GmbH (DBRS Morningstar) confirmed its A (high) (sf) rating on the Class A Notes issued by Asti Group PMI S.r.l. (the Issuer or Asti Group PMI).
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- The amendments to the transaction that became effective on 13 March 2020;
-- No purchase termination events have occurred;
-- The overall portfolio performance as of the January 2020 payment date, particularly with regard to low levels of delinquencies and defaults;
-- Updated base case assumptions, considering the updated quarterly performance data received by DBRS Morningstar, and the probability of default (PD), recovery rate, and expected loss assumptions considering the worst-case portfolio composition allowed under the eligibility criteria; and
-- The current available credit enhancement to the Class A Notes to cover expected losses assumed in line with the A (high) (sf) rating level.
The rating on the Class A Notes addresses the timely payment of interest and ultimate repayment of principal payable on or before the maturity date in April 2090.
Asti Group PMI is a securitisation collateralised by a portfolio of secured and unsecured loans to Italian small and medium-size enterprises (SMEs), entrepreneurs, artisans, and producer families granted by Cassa di Risparmio di Asti S.p.A. (CR Asti; 75.5% of the portfolio as at the January 2020 payment date) and Cassa di Risparmio di Biella e Vercelli S.p.A. (BiverBanca; 24.5% of the pool). CR Asti and BiverBanca (together, the Originators) also act as the Servicers of their respective portfolios. As BiverBanca has been part of CR Asti banking group since 2012, the transaction comprises a single waterfall with full cross-collateralisation between the two portfolios since the closing date.
On 13 March 2020, the following amendments were made to the transaction:
-- The revolving period was extended by 18 months to October 2021 and certain concentration and renegotiation limits were changed; and
-- Defaulted loans and loans in arrears by 31 days or more were repurchased.
The aggregate proceeds received by the Issuer within the scope of these amendments will be credited to the collection account and will form part of the available funds on the next payment date.
As at the January 2020 payment date, the overall portfolio consisted of 11,983 loans with an aggregate principal balance of EUR 1,184.4 million (which excludes EUR 8.2 million of loans classified as defaulted).
The delinquency ratio, defined as the ratio between the outstanding balance of loans in arrears by more than 60 days (excluding defaulted loans) and the outstanding balance of the portfolio as of the end of the previous collection period (including defaulted loans), was 1.8%. The cumulative default ratio was 0.7% of the initial portfolio.
The transaction closed in March 2017, and its revolving period is, following the aforementioned amendment, scheduled to end in October 2021. During this period, each Originator may sell new receivables to the Issuer subject to certain conditions and limitations. The revolving period will end prematurely upon the occurrence of a purchase termination event, which include gross cumulative defaults exceeding certain thresholds, the inability of the Issuer to fully replenish the cash reserve, and the insolvency of one of the Originators.
Additionally, if the Issuer terminates the appointment of either CR Asti or BiverBanca as the Servicer or if one of the two banks does not fulfil its own obligations under the transaction documents, the revolving period will end prematurely only for the affected Servicer/Originator. However, the unaffected Originator will have to fulfil all the revolving conditions and limitations, as these are based on the overall portfolio and not on the single pools. The purchase of new receivables is funded through principal collections as well as excess spread to make up for any defaulted loans. To date, a purchase termination event has not occurred.
Based on the updated historical data provided by the Originators and considering the performance observed, DBRS Morningstar updated its base case PD assumption to 4.9%.
DBRS Morningstar’s analysis assumed the worst-case portfolio allowed by the eligibility criteria and portfolio limits, as well as the maximum loan-term modifications that allow loans’ maturities extensions. At the A (high) (sf) rating level, the portfolio default and recovery assumptions applied in the analysis were 57.4% and 31.0%, respectively.
Credit enhancement for the Class A Notes (42.1%) is provided by the subordination of the more junior obligations and the cash reserve account.
A cash reserve account, funded at closing with EUR 14.0 million through the proceeds of the subordinated loan granted by the Originators, is available to cover senior expenses and missed interest payments on the Class A Notes. The required level for the cash reserve is set at 2.0% of the Class A Notes balance, subject to a EUR 7.0 million floor. On the payment date on which the Class A Notes will be redeemed in full, the cash reserve target amount will be reduced to EUR 0.
Additionally, an additional cash reserve is also available during the revolving period to cover senior expenses, missed interest payments on the Class A Notes and the acquisition of additional receivables.
The structure also benefits from a set-off reserve account, funded at closing with EUR 17.8 million (1.5% of the initial portfolio balance), which will be available immediately following the occurrence of an insolvency event in respect to any of the Originators. The target set-off reserve amount is EUR 17.8 million during the revolving period, and 1.5% of the portfolio balance afterward.
BNP Paribas Securities Services, Milan branch (BNP Milan) acts as Transaction Bank for the transaction. Based on the DBRS Morningstar private rating of BNP 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 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.
For additional disclosure related to the impact of Coronavirus (COVID-19) on DBRS Morningstar Methodologies, please see the following link: https://www.dbrsmorningstar.com/research/357883/dbrs-morningstar-provides-update-on-rating-methodologies-in-light-of-measures-to-contain-coronavirus-disease-covid-19.
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.
An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.
DBRS Morningstar conducted a review of the amended transaction documents, including the Repurchase Agreement. A review of any other transaction’s legal documents was not conducted as the these 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 the Arranger, UniCredit Bank AG and the Originators, CR Asti and BiverBanca. Servicer and investor reports provided by the Originators and BNP Milan, and loan-by-loan data from the European DataWarehouse GmbH were also considered in the analysis.
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 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 13 December 2019, when DBRS Morningstar confirmed the rating of the Class A Notes at A (high) (sf).
The lead analyst responsibilities for this transaction have been transferred to Ilaria Maschietto.
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 4.9%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 31.0% at the A (high) (sf) rating level, and 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%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Class A Notes rating at A (high) (sf). A scenario combining both a hypothetical increase in the PD by 20% and a hypothetical decrease in the recovery rate by 20% would lead to a downgrade of the Class A Notes to BBB (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: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 16 March 2017
DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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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
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Structured Finance Surveillance Methodology
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.