DBRS Ratings GmbH (DBRS Morningstar) upgraded and confirmed the following rating actions on the bonds issued by Siena PMI 2016 S.r.l. – Series 2-2019 (the Issuer):
-- Class A2 Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from AA (low) (sf)
-- Class C Notes upgraded to BBB (low) (sf) from BB (high) (sf)
-- Class D Notes confirmed at CC (sf)
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 May 2020 payment date.
-- Base case probability of default (PD) and updated recovery rates on the remaining pool of receivables.
-- Current available credit enhancement to the rated notes to cover the expected losses at the respective rating levels.
-- Current economic environment and sustainable performance assessment, as a result of the Coronavirus Disease (COVID-19) outbreak.
The rating on the Class A2 Notes addresses the timely payment of interest and ultimate repayment of principal on or before the final legal maturity date in February 2060. The rating on the Class B Notes addresses the timely payment of interest and ultimate payment of principal on or before the final legal maturity date, in accordance with the transaction documentation. The ratings on the Class C and Class D Notes address the ultimate payment of interest and ultimate repayment of principal on or before the final legal maturity date. The Issuer also issued Class J Notes, which were not rated by DBRS Morningstar.
The Issuer is a cashflow securitisation collateralised by a portfolio of secured and unsecured loans to small and medium-size enterprises (SME), entrepreneurs, artisans, and producer families based in Italy. The loans were granted by Banca Monte dei Paschi di Siena S.p.A. (BMPS), also the servicer. A small percentage of the portfolio (totalling approximately 2.5% of outstanding notional) was originated by Banca Antonveneta S.p.A., Banca Agricola Mantovana S.p.A., and Banca Toscana S.p.A. before they merged into BMPS.
As of the May 2020 payment date, loans two- to three-months in arrears represented 0.3% of the outstanding portfolio balance, up from 0.0% at closing. The 90+ delinquency ratio was 0.5% of the outstanding portfolio balance and the cumulative default ratio stood at 0.0%.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of receivables and updated its default rate and recovery rate assumption on the outstanding portfolio to 21.1% and 35.9%, respectively, at the B (sf) rating level. The base case PD has been updated to 5.4%, following COVID-19 adjustments.
As of the May 2020 payment date, the credit enhancements to the Class A2, Class B, and Class C Notes stood at 57.1%, 43.2%, and 26.5%, respectively, up from 42.6%, 32.6%, and 20.6%, respectively at closing. The credit enhancements to the notes are provided by the subordination of the junior class of notes. The increase in the credit enhancement prompted the confirmation and upgrade of the ratings.
The transaction includes a cash reserve, which is available to cover senior fees and interest on the Class A2, Class B, and Class C Notes. The cash reserve amortises subject to the target level being equal to 2% of the outstanding balance of the Class A2, Class B, and Class C Notes. As of the May 2020 payment date, the cash reserve was at its target level of EUR 25,8 million.
BNP Paribas Securities Services SCA, Milan branch acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating of BNP Paribas Securities Services SCA, Milan branch, 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 A2 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.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that payment holidays and delinquencies may arise in the coming months for many SME transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.
For this transaction DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.
The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 18 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated Structured Credit transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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 Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
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.
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” (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 Morningstar 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 investor reports provided by Securitisation Services S.p.A., 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 purpose 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 25 June 2019, when DBRS Morningstar assigned ratings to the notes, as follow:
-- Class A1 Notes rated AAA (sf)
-- Class A2 Notes rated AAA (sf)
-- Class B Notes rated AA (low) (sf)
-- Class C Notes rated BB (high) (sf)
-- Class D Notes rated CC (sf)
On 20 February 2020, the Class A1 Notes were repaid in full.
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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):
-- PD Rates Used: Base case PD of 5.4%, a 10% and 20% increase of the base case PD.
-- Recovery Rates Used: Base case recovery rates of 35.9%, a 10% and 20% decrease in 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), the Class B Notes at AA (sf), and the Class C Notes at BBB (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 not have an impact on the aforementioned ratings either. The rating of the Class D Notes would not be affected by any change in either the PD or recovery rates.
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: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 25 June 2019
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, https://www.dbrsmorningstar.com/research/347780/rating-clos-backed-by-loans-to-european-smes
-- Rating CLOs and CDOs of Large Corporate Credit (28 February 2020)
-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
-- 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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019), https://www.dbrsmorningstar.com/research/354403/master-european-residential-mortgage-backed-securities-ratingmethodology-and-jurisdictional-addenda
-- Interest Rate Stresses for Structured Finance Transactions (10 October 2019)
-- Cash Flow Assumptions for Corporate Credit Securitizations (28 February 2020)
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.