DBRS Ratings GmbH (DBRS Morningstar) confirmed its rating of the Class A Notes issued by 24-7 Finance S.r.l. (the Issuer) at A (sf).
The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity in August 2055.
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 August 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 A Notes to cover the expected losses at the A (sf) rating level;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
24-7 Finance S.r.l. is a securitisation of residential mortgage loans originated and initially serviced by B@nca 24-7 S.p.A. (Banca 24-7), the internet banking subsidiary of Unione di Banche Italiane S.p.A. (UBI Banca). In July 2012, Banca 24-7 was merged into UBI Banca, which replaced Banca 24-7 under all its roles. The transaction closed in June 2008, when the special-purpose vehicle issued one senior classe of floating-rate notes, the Class A Notes, and one junior class of variable return notes, the Class B Notes.
Several amendments were executed since the issue date:
-- In 2013, a liquidity reserve was funded and the target balance of the cash reserve was reduced. Additionally, the collateral posting language for the swap agreements was amended;
-- In 2017, UBI Banca was appointed as additional transaction bank, replacing The Bank of New York Mellon SA/NV, Milan and London branch in their activities. Appropriate downgrade provision language was included in the transaction documentation;
-- In 2019, the downgrade language for the account bank was amended. Additionally, repurchase limits for performing, unlikely-to-pay and defaulted loans were changed.
Please refer to previous press releases for additional information.
On 17 February 2020, Intesa Sanpaolo S.p.A. (Intesa Sanpaolo) launched a public tender offer on UBI Banca shares. The offer ended on 30 July, with acceptance by 90.2% of UBI Banca’s shareholders.
The integration process is ongoing. Please refer to the below press release for additional information, in which DBRS Morningstar upgraded the ratings of UBI Banca by one notch, including the Long-Term Issuer Rating to BBB (high) from BBB and the Short-Term Issuer Rating to R-1 (low) from R-2 (high), maintaining a Negative trend. Please see the press release for more information: https://www.dbrsmorningstar.com/research/365390/dbrs-morningstar-confirms-intesa-and-upgrades-ubis-issuer-rating-to-bbb-high-following-the-conclusion-of-intesas-offer
As of the June 2020 cut-off, loans that were two- to three-month in arrears represented 0.6% of the outstanding portfolio balance, slightly down from 0.7% as of the June 2019 cut-off. The 90+ delinquency ratio was 3.1%, also slightly down from 3.3% in June 2019. The gross cumulative default ratio was 13.9% of the initial portfolio balance, only marginally increasing from 13.4% last year.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 14.4% and 6.6%, respectively.
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement, theoretically including the cash reserve (which however has a current balance equal to EUR 0.0). As of the August 2020 payment date, credit enhancement to the Class A Notes was 47.4%, up from 35.3% in August 2019.
The cash reserve would be available to provide both liquidity and credit support to the Class A Notes, but is currently below its target level of EUR 1.8 million (or 0.5% of the outstanding balance of Class A Notes). The transaction also benefits from a non-amortising liquidity reserve, which is available to cover shortfalls on senior fees, expenses, and amounts due to the swap counterparty and interest payments on the Class A Notes. The reserve is currently at its target level of EUR 35.1 million.
UBI Banca acts as the account bank for the transaction. Based on the DBRS Morningstar reference rating of UBI Banca at A (low), one notch below the DBRS Morningstar’s Long-Term Critical Obligation Rating of “A”, the downgrade provisions outlined in the transaction documents, and structural mitigants 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 A 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 A 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 increased the expected default rate for self-employed borrowers and assumed a moderate decline in residential property prices. In addition, DBRS Morningstar conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand potentially high payment holiday levels in the portfolio. As of 30 June 2020, around 18.4% of the current portfolio balance benefits from a payment moratorium, with the majority of it being a three-month principal plus interest suspension.
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 last updated on 22 July 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-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.
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:
The sources of data and information used for this rating include investor reports provided by The Bank of New York Mellon SA/NV, Milan Branch, servicer reports and additional information provided by UBI Banca, 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 9 September 2019, when DBRS Morningstar downgraded the rating on the Class A Notes to A (sf) from A (high) (sf), following a transaction amendment.
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 14.4% and 6.6%, 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 A 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 to 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 A 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: 27 July 2011
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.
-- 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)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (14 July 2020) and European RMBS Credit Model 188.8.131.52
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019)
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.