Press Release

DBRS Morningstar Takes Rating Actions on Three Popolare Bari RMBS Transactions

RMBS

February 17, 2023

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on several classes of notes issued in the context of three Popolare Bari RMBS transactions:

2017 Popolare Bari RMBS S.r.l. (2017 PB)
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (high) (sf) from AA (low) (sf)

2018 Popolare Bari RMBS S.r.l. (2018 PB)
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (low) (sf)

2019 Popolare Bari RMBS S.r.l. (2019 PB)
-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AA (high) (sf)
-- Class B Notes confirmed at A (high) (sf)

The ratings on all Class A Notes address the timely payment of interest and the ultimate payment of principal by the respective final maturity dates, except for the 2019 PB Class A2 Notes, where the rating addresses the ultimate payment of interest and the ultimate payment of principal by the final maturity date.

The ratings on all other classes of notes address the ultimate payment of interest and the ultimate payment of principal by the respective final maturity dates.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies, defaults, and losses, as of the respective latest payment dates;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels.

The transactions are securitisations of Italian first-lien residential mortgage loans originated and serviced by Banca Popolare di Bari S.C.p.A. (BPB) and Cassa di Risparmio di Orvieto S.p.A. (CRO; part of the BPB group). BPB and CRO service the portfolios, with Zenith Service S.p.A. acting as backup servicer.

PORTFOLIO PERFORMANCE
The three portfolios are currently performing within DBRS Morningstar’s expectations. As of the latest cut-off dates, the 90+-day arrears and gross cumulative default ratios were as follows:
-- 2017 PB: 0.29% and 2.42%, respectively
-- 2018 PB: 0.18% and 1.76%, respectively
-- 2019 PB: 0.36% and 0.93%, respectively

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pools of receivables and updated its base case PD and LGD assumptions as follows:
-- 2017 PB: 10.4% and 10.6%, respectively
-- 2018 PB: 9.2% and 10.5%, respectively
-- 2019 PB: 10.9% and 10.5%, respectively

CREDIT ENHANCEMENT
Credit enhancement to the rated notes is provided by the overcollateralisation of the outstanding portfolio balance.

As of the latest payment dates, credit enhancement levels were as follows compared with the latest annual review in February 2022:
-- 2017 PB – Class A Notes: 57.4%, up from 47.6%
-- 2017 PB – Class B Notes: 39.1%, up from 31.8%
-- 2018 PB – Class A Notes: 42.0%, up from 33.9%
-- 2018 PB – Class B Notes: 30.2%, up from 23.7%
-- 2019 PB – Class A1 Notes: 34.4%, up from 29.1%
-- 2019 PB – Class A2 Notes: 30.0%, up from 25.2%
-- 2019 PB – Class B Notes: 24.1%, up from 20.0%

The transactions benefit from cash reserves, available to cover senior fees and expenses, swap payments, and interest payments on the Class A Notes (only Class A1 Notes in the case of 2019 PB). Various performance-related triggers are in place to defer the interest on subordinated notes upon portfolio deterioration.

All reserves were at their target levels as of the latest payment dates.

BNP Paribas Succursale Italia acts as the account bank for the three transactions. Based on DBRS Morningstar’s private rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in each transaction’s structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

The swap counterparty role is covered by the following entities:
-- For 2017 PB and 2018 PB: JP Morgan AG
-- For 2019 PB: NatWest Markets Plc

DBRS Morningstar did not give full credit to the swap agreements of 2017 PB and 2018 PB as the swap documentations are not consistent with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the ratings assigned to the Notes. As for 2019 PB, DBRS Morningstar considers the risk arising from the swap counterparty to be consistent with the ratings assigned to the Notes, in accordance with the “Derivative Criteria for European Structured Finance Transactions” methodology.

The rating on the 2019 PB Class B Notes materially deviates from the higher rating implied by the quantitative model. DBRS Morningstar considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by a quantitative model that is a substantial component of a rating methodology. In this case, the ratings address the ultimate payment of interest and principal on or before the final maturity date as defined in the transaction legal documents. DBRS Morningstar typically expects bonds rated in the AA (sf) category to be able to pay interest on a timely basis at the time they are the most senior bond outstanding.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transactions’ structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to these ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in these transactions are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

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/401817/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include investor reports provided by Banca Finanziaria Internazionale S.p.A., servicer reports and additional information provided by BPB, 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 ratings, DBRS Morningstar was supplied with third-party assessments for all transactions. 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 these transactions took place on 18 February 2022, when:
-- For 2017 PB and 2018 PB, DBRS Morningstar upgraded its ratings on the Class A Notes to AAA (sf) from AA (high) (sf) and confirmed its ratings on the Class B Notes at AA (low) (sf).
-- For 2019 PB, DBRS Morningstar confirmed its ratings on the Class A1 and Class B Notes at AAA (sf) and A (high) (sf), respectively, and upgraded its rating on the Class A2 Notes to AA (high) (sf) from AA (sf).

The lead analyst responsibilities for these transactions have been transferred to Pascale Kallas.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.com.

Sensitivity Analysis: 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):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pools 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.

-- 2017 PB: 10.4% and 10.6%, respectively
-- 2018 PB: 9.2% and 10.5%, respectively
-- 2019 PB: 10.9% and 10.5%, 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. Taking the Class A Notes of 2017 PB as an example, if the PD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. If the LGD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf).

2017 PB – Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

2017 PB – Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (low) (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 BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

2018 PB – Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

2018 PB – Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (low) (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 BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

2019 PB – Class A1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

2019 PB – Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

2019 PB – Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Pascale Kallas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
-- 2017 PB: 31 July 2017
-- 2018 PB: 14 June 2018
-- 2019 PB: 15 October 2019

DBRS Ratings GmbH
Neue Mainzer Straße 75
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 these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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