DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the notes issued by BPL Mortgages S.r.l. (the Issuer), in the context of the seventh securitisation transaction of the Issuer (BPL VII) as follows:
-- Class A - 2014 at AA (low) (sf)
-- Series A2 - 2016 at AA (low) (sf)
-- Class B - 2014 at A (sf)
-- Series B2 - 2016 at A (sf)
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the February 2020 payment date.
-- Base case probability of default (PD), recovery rates, and updated default rates on the remaining receivables.
-- The credit enhancement available to the rated notes to cover the expected losses at their respective rating levels.
The ratings on the Class A – 2014, Series A2 – 2016 (together, the Class A Notes), Class B – 2014 and Series B2 - 2016 Notes (together, the Class B Notes) address the timely payment of interest and ultimate payment of principal payable on or before the maturity date in November 2054.
BPL VII 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 that were granted by Banco Popolare – Società Cooperativa (BP) or one of its regional banks. In January 2017, BP and Banca Popolare di Milano S.C.a.r.l. merged into Banco BPM SpA (Banco BPM).
The transaction closed in June 2014. Following a transaction restructuring in February 2016, BPL VII acquired a second portfolio from BP and sold all loans in arrears by 57 days or more comprised in the pool as of 25 January 2016. The second portfolio included both newly originated performing loans and loans from BPL Mortgages S.r.l. – Series VI, the Issuer’s previous SME CLO transaction that was unwound on 19 February 2016. The second portfolio’s acquisition was financed through the new issuance of Series A2 - 2016, Series B2 - 2016 and Series C2 - 2016.
The transaction was restructured again in 2018. During the 2018 restructuring, BPL VII acquired another EUR 3,716.4 million portfolio from Banco BPM and Banca Popolare di Milano S.p.A. (BPM) through funds from the increase of some of the issued notes. The Issuer also sold all defaulted loans, loans in arrears by 51 days or more, and loans eligible for the Banco BPM covered bonds programme back to Banco BPM at par (EUR 579.2 million).
The portfolio is performing within DBRS Morningstar’s expectations. As of February 2020, loans more than 90 days in arrears represented 0.5% of the outstanding performing portfolio collateral balance. The cumulative gross default ratio stood at 2.9%.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool and updated its default rate and recovery assumptions. The base case PD was maintained at 5.4%.
The credit enhancement available to the Class A and B Notes continues to increase as the transaction deleverages. Credit enhancement to the Class A Notes is at 68.1% (53.4% in February 2019), and the credit enhancement to the Class B Notes is at 56.5% (44.8% in February 2019). The credit enhancement of the rated notes considers the balance of the performing portfolio and the cash reserve. The cash reserve is at its target amount 6.6% of the Class A and Class B Notes balance and subject to a EUR 100.0 million floor.
BNP Paribas Securities Services, London branch acts as transaction bank and BNP Paribas Securities Services, Milan branch is the paying agent for the transaction. Based on the private ratings of both institutions, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to the account bank and paying agent to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
Banco BPM acts as cash account bank and holds the reserve fund. As the cash account bank reference rating of BBB is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating of Banco BPM at BBB (high), which is below the Minimum Institution Rating given the ratings assigned to the Class A Notes as described in the "Legal Criteria for European Structured Finance Transactions" methodology”, DBRS Morningstar did not give credit to the reserve fund in its analysis of the Class A Notes.
DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and COVID-19, please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs” (8 July 2019).
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 at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include reports provided by Banco BPM and loan-by-loan 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 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 12 April 2019, when DBRS Morningstar upgraded the Class A Notes to AA (low) (sf) from A (sf) and the Class B Notes to A (sf) from BBB (high) (sf).
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.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 5.4%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rates of 42.17% at the AA (low) (sf) stress 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. The base case recovery rate at the A (sf) stress level is 45.4%.
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 AA (low) (sf). A hypothetical increase of the base case PD by 20% would lead to a confirmation of the Class B Notes at A (sf) while a hypothetical decrease of the Recovery Rate by 20%, would lead to a downgrade of the Class B Notes to A (low) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Class A Notes at AA (low) (sf) and to a confirmation of the Class B Notes at A (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 U.S. regulations only.
Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 30 June 2014
DBRS Ratings GmbH
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60311 Frankfurt am Main – Deutschland
Tel. +49 (69) 8088 3500
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.dbrsmorningstar.com/about/methodologies.
-- Rating CLOs Backed by Loans to European SMEs (8 July 2019) and SME Diversity Model v.2.4
-- Rating CLOs and CDOs of Large Corporate Credit (28 February 2020)
-- Master European Structured Finance Surveillance Methodology (13 December 2019)
-- Cash Flow Assumptions for Corporate Credit Securitizations (28 February 2020)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019)
-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/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.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at firstname.lastname@example.org.