DBRS Ratings GmbH (DBRS Morningstar) confirmed its rating on the Class A Notes issued by Valsabbina SME SPV S.r.l. (the Issuer) at A (low) (sf).
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the April 2020 payment date.
-- Base case probability of default (PD), and recovery rates on the revolving pool of receivables.
-- The current credit enhancement available to Class A Notes to cover the expected losses at the respective rating level.
-- No revolving termination events have occurred so far.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in July 2060.
The Issuer is a cash flow securitisation collateralised by a portfolio of performing mortgage and nonmortgage loans to Italian small and medium-size enterprises (SMEs), entrepreneurs, artisans, and producer families. The loans were mainly granted by Banca Valsabbina S.C.p.A. (Banca Valsabbina), but also by Credito Veronese S.p.A. before it merged into Banca Valsabbina in 2012 (0.3% of the total initial portfolio).
The transaction includes a 24-month revolving period, scheduled to end in July 2021 (inclusive), during which time Banca Valsabbina may sell new receivables (i.e., further portfolios) to the Issuer subject to certain conditions and limitations. During the revolving period, the purchase of new receivables will be funded through principal collections and excess spread to make up for any defaulted loans. The revolving period will end prematurely if certain events occur, including the cumulative gross default rate exceeding 4.0%, the inability to fully replenish the cash reserve and the insolvency of the Banca Valsabbina.
As of April 2020, loans with two to three months in arrears represented 0.2% of the outstanding portfolio balance, and the 90+ delinquency ratio was at 0.1%, both up from 0.0% at transaction closing. The cumulative default ratio remains at 0.0%.
DBRS Morningstar conducted a loan-by-loan analysis on the revolving pool of receivables and updated its portfolio default and recovery assumptions, following adjustments related to the coronavirus pandemic.
The Class A Notes benefit from a total credit enhancement of 37.3%, provided by the overcollateralisation of the portfolio and the cash reserve. The credit enhancement remains unchanged since transaction closing because of the revolving period.
The transaction includes a cash reserve, which is available to cover senior fees and interest on the Class A Notes. The cash reserve will start amortising from the first payment date after the end of the revolving period, subject to the target level being equal to 1.8% of the outstanding balance of the Class A Notes, up to a floor of 0.5% of the original amount of the Class A Notes. As of the April 2020 payment date, the cash reserve was at its target level of EUR 9.5 million.
BNP Paribas Securities Services S.C.A., Milan branch (BNP Paribas) acts as the transaction account bank. Based on DBRS Morningstar’s private rating of BNP Paribas, 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 ratings assigned to the Class A 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 cashflow 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.
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 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 rating 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 on www.dbrs.com 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 “Rating Sovereign Governments” methodology at: : https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include transaction reports provided by Banca Valsabbina and 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 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 19 July 2019, when DBRS Morningstar assigned A (low) (sf) rating to the Class A Notes. The lead analyst responsibilities for this transaction have been transferred to Shalva Beshia.
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):
-- PD Rates used: a base case annualised PD of 7.5% and 3.1% for mortgage and non-mortgage loans, respectively, as well as the Covid-adjustments, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates used: base case recovery rates of 29.9% at the A (low) (sf) stress level, a 10% and 20% decrease in the base case recovery rates.
For the Class A Notes, DBRS Morningstar concluded that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, which would lead to a downgrade of the Class A Notes to BBB (high) (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 also 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:
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 19 July 2019
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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.2.4,0.0
-- 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)
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (14 July 2020)
-- Interest Rate Stresses for European 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.