DBRS Assigns Rating to Emilia SPV S.r.l.

DBRS Ratings Limited (DBRS) has today assigned a rating of A (sf) to the Class A notes issued by Emilia SPV S.r.l. (Issuer). At the Issue Date (22 April 2015) EUR 816,012,300 of the Class A notes will be paid up. The nominal balance of Class A notes is EUR 3,000,000,000. It is anticipated that the Issuer will receive further partial payment on the notes issued to acquire Subsequent Portfolios during the five-year Replenishment Period subject to eligibility criteria, portfolio limits and credit enhancement levels. DBRS-assigned ratings only apply to the paid up amount of the Class A notes at any point in time.

The ratings assigned to the notes address timely payment of interest and ultimate payment of principal.

This is the second RMBS issuance where loans originated by Credito Emiliano S.p.A. have been securitised and the first rated by DBRS.

The Originator, Servicer, Cash Manager and Account Bank of the transaction is Credito Emiliano S.p.A. The Back-up servicer facilitator is Securitisation Services. All transaction parties are suitably rated in accordance with the DBRS methodologies at the time of this rating to allow for the Class A notes to be rated A (sf).

Emilia SPV S.r.l. is an Italian securitisation of first lien, fully amortising mortgage loans originated and serviced by Credito Emiliano S.p.A. (Credem or Originator). As of the Valuation Date (24 October 2014), the Initial Portfolio consisted of 7,225 loans for a total notional balance of EUR 997.9 million and 3.3 million of accrued interest. Loans in the Initial Portfolio were granted to borrowers categorised under Bank of Italy SAE code 600-individuals (98.00%), SAE code 615-small commercial borrowers (1.58%) and SAE code 614-artisan (0.42%). The Initial Portfolio is well distributed across Italian regions with the three highest concentrations being Lombardy (26.45%), Emilia-Romagna (23.76%) and Lazio (10.02%). The Initial Portfolio is considered granular with the average loan balance at approximately EUR 138,125. The weighted-average original loan-to-value (WAOLTV) is 87.27% and the weighted-average current loan-to-value (WACLTV) is 75.70%.

The Class A notes will pay interest at three-months Euribor plus a margin of 75 basis points subject to a Euribor cap of 4.00%. The floating-rate loans in the Initial Portfolio are primarily indexed to three-month Euribor (65.60%), one-month Euribor (8.77%) and a residual portion to six-month Euribor and other indexes (0.67%). The loan portfolio also consists of fixed-rate loans (24.96%) and 17.11% of the loans have the option to switch from fixed rate to a floating rate or vice versa (17.11%). Moreover, a portion of the floating loans have a capped interest rate (1.88%).

The securitisation has a five-year Replenishment Period during which time the Issuer can purchase Subsequent Portfolios at each payment date. Purchases of Subsequent Portfolios will be funded through further issuance of the Class A and Class B notes subject to a total amount of EUR 3,900,000,000 (total initial balance of EUR 1,023,770,166). Purchase of Subsequent Portfolios will be subject to eligibility criteria of the Initial Portfolio and portfolio limits defined in the transaction documents.

Credit enhancement for the Class A notes at the Issue Date is 18.50% consisting of subordination of the Class B notes. During the Replenishment Period, credit enhancement for the Class A notes will adjust following the purchase of Subsequent Portfolios. On each payment date during the Replenishment Period following the purchase of Subsequent Portfolios, credit enhancement for the Class A notes will be defined based on a calculation defined in the transaction documents determined by the current loan-to-value and coupon of each loan in the portfolio at the valuation date. Credit enhancement to the Class A notes will be achieved via further issuance of the Class A and Class B notes in the necessary proportion. It is possible that the Class A notes may not be paid up to the nominal balance of EUR 3 billion due to an increased proportion of Class B notes being issued following the further purchase of Subsequent Portfolios where current loan-to-value and coupon of the total portfolio outstanding requires a higher level of credit enhancement relative to the Initial Portfolio.

The Reserve Fund has been established through an over-issuance of the class B notes (2.25% of the Initial Portfolio equal to EUR 22,528,000). The Reserve Fund is available to pay senior fees and interest on the Class A notes if collections are insufficient to meet the payments due. During the Replenishment Period, the Reserve Fund will increase in an amount equal to 2.25% of the further amount paid on the notes (both Class A and Class B). On each payment date following an increase to the size of the portfolio and subsequent issuance of additional notes, the Originator will fund the Reserve Fund through further issuance of the Class B notes. The Reserve Fund can amortise following the end of the Replenishment Period with a target amount of 5.50% of the outstanding amount of the Class A notes subject to the following conditions: (1) the outstanding amount of the Class A notes is below the 50% of the total amount issued, (2) the breach of the performance ratio, (3) the cash reserve at the previous payment date is not lower than the required amount and (4) no cash trapping condition has been activated. Additionally, the Reserve Fund has a floor at 50% of the total cash reserve funded during the Replenishment period.

The Originator can repurchase certain loans in the portfolio up to 15% of the outstanding portfolio during the life of the transaction and up to 5% of the outstanding portfolio on each payment date. The percentages are related to the Portfolio plus the subsequent Portfolios purchased by the Issuer during the Replenishment period. The Originator can repurchase all the eligible mortgages (as defined in the transaction documents with loan-to-value lower than 80%) without any limits each quarterly payment date, if performing.

The ratings are based upon DBRS review of the following analytical considerations:

-- Transaction capital structure and form and sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to terms in which they have invested.
-- The eligibility criteria and portfolio limits applicable to reinvestment proceeds and purchase of Subsequent Portfolios during the Replenishment Period.
-- The transaction parties’ capabilities with respect to originations, underwriting, servicing and financial strength.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.
-- Incorporation of a sovereign-related stress component in our stress scenarios due to the rating assigned by DBRS to the Republic of Italy’s of A (low) - Stable Trend.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include working papers and data on the Italian economy and housing market provided by: ECB, Eurostat, Bank of Italy, Nomisma, Istituto Nazionale di Statistica (ISTAT). DBRS conducted an operational review on the origination and servicing practices of Credem in November 2014. The Originators provided loan-level data and historical performance of mortgage portfolio dating back to 2005. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances.

This rating concerns a newly issued financial instrument. This is the first rating action.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of a change in the transaction parameters (probability of defaults and/or loss given default) on the rating of Class A Notes, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case).
Considering the revolving pool for the Emilia SPV transaction, DBRS calculates the sensitivity analysis on the most stressful Portfolio with a weighted-average current loan-to-value at 85%. The results are reported below:
-- In respect of the Class A Notes and a rating category of A (sf), the Probability of Default (PD) of 38.48%, a 25% and 50% increase on the PD.
-- In respect of the Class A Notes and a rating category of A (sf), Loss Given Default (LGD) of 45.81%, a 25% and 50% increase on the LGD.

DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (low) (sf).
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (high) (sf).
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (sf).
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (sf)
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (high) (sf).
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (low) (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Davide Nesa
Initial Rating Date: 22 April 2015
Initial Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

Legal Criteria for European Structured Finance Transactions
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations