DBRS Ratings GmbH (DBRS Morningstar) downgraded its rating on the Class A3 Notes issued by Marche M6 S.r.l. (MM6 or the Issuer) to A (sf) from AAA (sf), following an amendment to the transaction.
The rating addresses the timely payment of interest and the ultimate payment of principal by the legal final maturity date in January 2064.
The downgrade follows an entire review of the transaction and is based on the following analytical considerations:
-- An amendment to the transaction executed on 30 June 2020 (the Amendment);
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the April 2020 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class A3 Notes to cover the expected losses at the A (sf) rating level.
MM6 is a securitisation of Italian first-lien residential mortgage loans originated by Nuova Banca delle Marche S.p.A. (NBDM), the former Banca delle Marche S.p.A. In May 2017, NBDM was acquired by Unione di Banche Italiane S.p.A. (UBI Banca) but continued its servicing activities under the UBI group. From October 2017, when NBDM was fully merged into the UBI group, UBI Banca started to service the portfolio. The transaction closed in July 2013, when the special-purpose vehicle issued three senior classes and one junior class of floating-rate notes, namely the Class A1, Class A2, Class A3, and Class J Notes. The Class A1 and Class A2 Notes were fully redeemed on the payment dates falling in January 2018 and October 2019, respectively.
The following amendments were executed and are effective from 30 June 2020:
-- Termination of BNP Paribas Securities Services, Milan and London branches in their roles as the Italian and English account banks, respectively. As a result of the Amendment, UBI Banca will be appointed as the Italian account bank for the transaction.
-- As a consequence of the point above, changes to the contractual definition of the eligible institution.
-- Change in the minimum limits for spread and interest rate renegotiations that the servicer may grant to the securitised borrowers. In particular, the minimum spread will decrease to 1.10% from the current 1.25%, whereas the minimum interest rate will decrease to 1.10% from the current 4.50%. For spread renegotiations, the cumulative limit will remain unchanged at 15.0% of the initial portfolio balance.
The cumulative limit for interest rate renegotiations will increase from the current 2.0% to 4.0% of the initial portfolio balance.
-- Termination of Italfondiario S.p.A.’s appointment as the backup servicer, with no replacement backup servicer appointed for the time being.
-- Change in the repurchase price calculation for defaulted receivables.
-- Waiver of indemnification obligations to be paid to the special-purpose vehicle by the originator, in case of interest rate and spread renegotiations beyond certain thresholds.
-- Exclusion of payment suspensions granted as a result of pandemic or catastrophic events (also, for example, in accordance with Italian primary law or banking association agreements, such as ABI – the Italian Banking Association) from the computation of the limits set out by the servicing agreement.
The portfolio is performing within DBRS Morningstar’s initial expectations. As of the March 2020 cut-off, there were no loans in the 30-60 days arrears bucket, while the 90+ delinquency ratio was 0.2% of the current portfolio balance, stable from the December 2019 cut-off, which DBRS Morningstar’s latest rating action refers to. The gross cumulative default ratio stood at 4.3% of the initial portfolio balance, also stable from the December 2019 cut-off.
PORTFOLIO ASSUMPTIONS, CREDIT ENHANCEMENT, AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 4.7% and 6.9%, respectively.
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement and includes the cash reserve. As of the April 2020 payment date, credit enhancement to the Class A3 Notes was 59.4%, up from 57.0% as of the January 2020 payment date, which DBRS Morningstar’s latest rating action refers to.
The transaction benefits from an amortising cash reserve, available to cover shortfalls on senior fees, expenses, and interest payments on the Class A3 Notes. The reserve is currently at its target level of EUR 34.0 million, which is also equal to its floor level.
As a result of the Amendment, UBI Banca will act as the Italian account bank for the transaction, with the contractual minimum eligible institution DBRS Morningstar rating lowered to BBB (low) from “A”. Based on the reference rating of the Italian account bank at BBB (high), one notch below the DBRS Morningstar Long Term Critical Obligation Rating of A (low), the updated downgrade provisions outlined in the Amendment, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the Italian account bank to be consistent with the updated A (sf) rating on the Class A3 Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
J.P. Morgan Securities plc acts as the swap counterparty for the transaction. The DBRS Morningstar private raring of the swap counterparty is consistent with the first rating threshold, as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A3 Notes. Obligations under the swap agreement are guaranteed by J.P. Morgan Chase Bank N.A.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
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 delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The rating is 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 assumed a moderate decline in the residential property prices and increased the expected default rate for self-employed borrowers. In addition, DBRS Morningstar conducted additional sensitivity analysis to determine if the transaction benefits from sufficient liquidity support to withstand the current levels of payment holidays in the portfolio. Reported payment holidays were considered in the cash flow analysis.
On 16 April 2020, the DBRS Morningstar Sovereign group released 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 5 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus is likely to affect the DBRS Morningstar-rated RMBS transactions in Europe. For more details please see: https://www.dbrsmorningstar.com/research/360599/european-rmbs-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 rating is the “Master European Structured Finance Surveillance Methodology” (22 April 2020).
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
DBRS Morningstar conducted a review of the amended transaction documents including the Transfer Agreement; the Servicing Agreement; the Cash, Allocation, Management, and Payment Agreement; and the Backup Servicing 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 at: https://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:
The sources of data and information used for this rating include servicer reports and additional information provided by UBI Banca, payment and 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 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 6 February 2020, when DBRS Morningstar confirmed the rating on the Class A3 Notes at AAA (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 with the parameters used to determine the rating (the Base Case):
-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 4.7% and 6.9%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A3 Notes would be expected to remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected remain at A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at A (sf).
Class A3 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 16 July 2013
DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019) and European RMBS Credit Model 188.8.131.52,
-- 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.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019),
-- Derivative Criteria for European Structured Finance Transactions (10 October 2019),
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.