DBRS Assigns Ratings to New CR Volterra 2 SPV S.r.l. Notes, Confirms Class A Notes Issued in July 2013

DBRS Ratings Limited (DBRS) has today assigned a new rating to the following notes issued by CR Volterra 2 SPV S.r.l. (Issuer):

• EUR 186,800,000 Class A-2016 Residential Mortgage Backed Securities at A (sf)
• EUR 18,300,000 Class M-2016 Residential Mortgage Backed Securities at BBB (sf)

DBRS has also confirmed the rating on the Class A-2013 (previously Class A) Residential Mortgage Backed Securities at A (sf) and removing the Under Review with Positive Implications (UR-Pos.) status.

The ratings of the Class A-2013 notes and Class A-2016 notes (together, the Class A notes) address timely payment of interest and ultimate payment of principal on or before the legal final maturity date while the rating of the Class M-2016 notes addresses ultimate payment of interest and principal on or before the legal final maturity date.

The rating action on the Class A notes concludes the UR-Pos. status of the rating. The rating on the Class A notes was previously placed UR-Pos. as a result of the updated publication of DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology (the Legal Criteria) on 19 February 2016. The Legal Criteria incorporated the Critical Obligations Ratings (COR) into counterparty replacement and other rating threshold levels to reflect an updated opinion on the reduced risk that these critical exposures could pose to structured finance transactions. As part of the Legal Criteria update, DBRS also provided more granular rating levels for account bank institution replacements and eligible investments.

The Issuer is a limited liability company incorporated in 2013 under the laws of the Republic of Italy.
The Issuer purchased an additional portfolio of mortgage loans with an outstanding balance equal to EUR 207,596,028. The purchase of the further portfolio has been funded through the issuance of two new classes of notes: Class A-2016 and Class M-2016. The amount of the cash reserve has also increased to EUR 7,072,054.

The counterparties involved in the transaction have not been changed. The originator and servicer of the transaction is Cassa di Risparmio di Volterra S.p.a. (CR Volterra or the Originator), the back-up servicer is Securitisation Services S.p.a. The Account Bank and Principal Paying Agent is BNP Paribas Securities Services SA, Milan branch. The DBRS private ratings of the Account Bank comply with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology given the A (sf) rating assigned to the Class A notes.

The notes are backed by a portfolio of first and second lien loans. The transaction has a weighted-average unindexed current loan-to-value (WACLTV) of 52.59% and original weighted-average unindexed (WAOLTV) of 65.51%. The loans in the transaction are granted to Bank of Italy SAE code 600 for individuals (80.39%), SAE code 614 for artisans (5.52%) and SAE code 615 for small commercial borrowers (14.03%).

The portfolio interest rate is primarily linked to six-month Euribor (95.97%). Additionally, the portfolio has exposure to fixed interest rates (3.84%) and a residual exposure to three-month Euribor (0.11%) and the European Central Bank main refinancing rate or ECB rate (0.08%). The portfolio includes loans with a cap on the interest rate (8.81%).

The loans in the portfolio pay capital plus interest following two different amortisation plans. The first is the French amortisation plan where borrowers pay capital plus interest on the loans combined (56.82% of the portfolio) while the second is an amortisation plan composed of constant instalments (43.18%) where borrowers pay a fixed instalment with interest and principal is diverted based on the interest accrued on the loans. The loans paying constant instalment loans would bring in a rising rate scenario to reduce the interest and principal proceeds of the issuer during the life of the mortgages and postponing the principal payment at maturity. DBRS has modelled the possible impact on the Issuer revenues in the cash flow analysis.

Credit enhancement for the Class A notes is calculated as 15.51%, provided by the subordination of the Class M-2016 notes and the portion of the Class J collateralised by the mortgage portfolio. Credit enhancement for the Class M-2016 notes is calculated as 10.48%, provided by the subordination of the portion of the Class J notes collateralised by the mortgage portfolio. The cash reserve has been tapped to the new target amount at EUR 7,072,054 (2.17% of the current balance of the Class A notes and the Class M-2016 notes) and can amortise during the life of the transaction to 2.17% of the current outstanding of the Class A notes and Class M-2016 notes starting from the second payment date. The cash reserve has a floor at 0.50% of the initial balance of the Class A notes and Class M-2016 notes. The cash reserve is available to pay the senior fees and the interest on the Class A notes and also to cover interest of the Class M-2016 notes before the cumulative default are above 15.5% of the initial balance of the Portfolio. The commingling reserve has been maintained at the original target amount of EUR 4,427,200 (1.36% of the current balance of the Class A notes and the Class M-2016 notes). The commingling reserve is not available to cover credit losses but is available to pay fees, Class A interest and Class M-2016 interest in the event of a servicer disruption.

The Class A-2013 notes and Class A-2016 notes are pro rata and pari passu both in payment of interest and principal. The Class A-2013 notes pay quarterly interest in arrears equal to three-month Euribor plus a margin of 50 basis points while the Class A-2016 notes pay quarterly interest in arrears equal to three-month Euribor plus a margin of 49 basis points. The Class M-2016 notes pay a coupon equal to three-month Euribor plus a margin of ten basis points. The waterfall for payments of interest and principal on the notes combines both revenue and principal receipts from the mortgage portfolio.

The servicing agreement allows loans to be renegotiated. The renegotiations can be related to spread/interest rate reduction, renegotiation to fixed or floating loans or both capital and interest payment holidays. DBRS has modelled the possible impact of these renegotiations in its cash flow analysis based on the limits included in the transaction documents.

For further details on the analysis please refer to the rating report available on www.dbrs.com.

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 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 DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

-- Incorporation of a sovereign-related stress component in the stress scenarios due to the rating assigned by DBRS to the Republic of Italy of A (low), Stable trend.

The portfolio comprised of mortgages collateralised by non-residential properties (6.04%). DBRS stressed the market value declines for such properties in accordance with the Rating CLOs Backed by Loans to European SMEs methodology. For further details please refer to the rating report.

As a result of the analytical considerations, DBRS derived a Base Case PD of 13.19% and LGD of 26.78%, which resulted in an EL of 3.53% using the European RMBS Credit Model. DBRS cash flow model assumptions stress the timing of defaults and recoveries, prepayment speeds and interest rates. Based on a combination of these assumptions, a total of 16 cash flow scenarios were applied to test the capital structure and ratings of the notes. The cash flows were analysed using Intex DealMaker.

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”.

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

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of the 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 these ratings include working papers and data on the Italian economy and housing market provided by: the European Central Bank, Eurostat, Bank of Italy, Istituto Nazionale di Statistica (ISTAT). DBRS reviewed the origination and servicing practices of Cassa di Risparmio di Volterra S.p.a. in April 2016. The Originator provided loan-level data and historical performance of mortgage portfolio dating back to 2007. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS has been supplied with third-party assessments. However, this did not impact the rating analysis.

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.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

These ratings were disclosed to Banca Akros S.p.a. as arranger of the Originator.

The last rating action on this transaction concerning the Class A Notes took place on 19 February 2016 when DBRS placed its rating of A (sf) on the Class A-2013 notes Under Review with Positive Implications. The lead responsibilities concerning today’s rating action on the Class A-2013 notes have been transferred to Davide Nesa.

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 and the Class M-2016 notes, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- In respect of the Class A notes and a rating category of A(sf), the Probability of Default (PD) of 31.70%, 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 39.12%, a 25% and 50% increase on the LGD.
-- In respect of the Class M notes and a rating category of BBB (sf), the PD of 26.51%, a 25% and 50% increase on the PD.
-- In respect of the Class M notes and a rating category of BBB (sf), LGD of 34.79%, 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 (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 BBB(low) (sf).
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to downgrade the Class A notes to BBB(low) (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(high) (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 (sf).

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

For further information on DBRS historic default rates published by the European Securities and Markets Authority (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: Alastair Bigley
Initial Rating Date: 31 July 2013
Initial Rating Committee Chair: Quincy Tang

Current Lead Analyst: Davide Nesa, Senior Financial Analyst
Rating Committee Chair: Erin Stafford, Managing Director

Lead Surveillance Analyst: Antonio Di Marco, Senior Financial Analyst

DBRS Ratings Limited
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United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction are listed below:

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

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

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375