DBRS Morningstar Assigns Ratings to 2019 Popolare Bari RMBS S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) assigned the following ratings to the Class A1, Class A2 and Class B Residential Mortgage-Backed Floating Rate Notes issued by 2019 Popolare Bari RMBS S.r.l. (the Issuer):

-- EUR 641,216,000 Class A1 Notes (IT0005386682) at AA (high) (sf)
-- EUR 23,749,000 Class A2 Notes (IT0005386716) at A (high) (sf)
-- EUR 31,665,000 Class B Notes (IT0005386724) at BBB (high) (sf)

The rating assigned to the Class A1 Notes addresses the timely payment of interest and the ultimate payment of principal on or before the final maturity date in May 2069. The ratings assigned to the Class A2 and Class B Notes address the ultimate payment of interest and principal on or before the final maturity date. DBRS Morningstar does not rate the EUR 101,265,000 Class J1 Notes (ISIN IT0005386740) or the EUR 11,591,000 Class J2 Notes (ISIN IT0005386732) issued in this transaction.

The purchase of the portfolio was funded through the issuance of Class A1, Class A2, Class B, Class J1 and Class J2 Notes while the EUR 14,961,712 cash reserve was fully funded through the issuance of the Class J1 and Class J2 Notes. The cash reserve is equal to 2.25% of the initial balance of the Class A1 and A2 Notes.

At closing, the Class A Notes benefitted from 19% credit enhancement (calculated as a percentage of the portfolio) while the Class A2 Notes benefitted from 16% credit enhancement and the Class B Notes benefitted from 12% credit enhancement.Credit enhancement is also available through the cash reserve to the extent that released amounts of the cash reserve (once Class A1 is fully redeemed) are part of the available funds.

The portfolio consists of Italian residential mortgage loans originated by Banca Popolare di Bari S.c.p.a. (BPB) and Cassa di Risparmio di Orvieto S.p.A., which are also the servicers of their respective sub-pools. BPB also acts as the master servicer of the transaction, while Zenith Service S.p.A. was appointed as the back-up servicer.

As of 25 September 2019, the portfolio consisted of 11,588 mortgage loans granted to 11,066 borrowers. At that time, the total balance of the portfolio was EUR 792 million and the average loan balance was EUR 68,314. The weighted-average (WA) seasoning of the portfolio was 4.6 years with a WA residual maturity of 17.7 years. The WA loan-to-value of the portfolio was 50.6%. The portfolio is mainly concentrated in the Abruzzo (34.4% of the pool balance) and Apulia (29.0%) regions of Italy.

The portfolio is split between 63.2% floating- and 36.8% fixed-rate loans. A small portion of the floating-rate loans (1.7% of the total pool) include an interest rate cap. The majority of floating-rate loans (62.8% of the floating-rate pool) are indexed to three-month Euribor.

There is one swap transaction in place to hedge the fixed-floating interest rate risk. Natwest Markets Plc (currently rated with a Long-Term Critical Obligations Rating of “A” with a Positive trend by DBRS Morningstar) acts as swap counterparty. Based on its rating and on the collateral posting provisions included in the documentation, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with its “Derivative Criteria for European Structured Finance Transactions” methodology.

The account bank is BNP Paribas Securities Services, Milan branch. Based on the account bank’s private ratings and the replacement provisions included in the transaction documents, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
-- The portfolio characteristics. The European RMBS Credit Model was used to estimate the expected probability of default (PD), loss given default (LGD) and expected loss of the portfolio.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the terms and conditions of the Notes.
-- The incorporation of a sovereign-related stress component in the stress scenarios as a result of DBRS Morningstar’s BBB (high) rating assigned to the Republic of Italy.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and presence of legal opinions addressing the assignment of the assets to the Issuer.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.”

DBRS Morningstar 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.

These 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of information used for these ratings include historical performance, default, recovery and prepayment data, and loan-level data provided by the originators.

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

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 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.

These ratings concern a newly rated financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

In respect of the Class A1 Notes, the PD and LGD at the AA (high) (sf) stress scenario of 32.43% and 28.02%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS Morningstar assesses the following impact on the Class A1 Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to A (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)

DBRS Morningstar assesses the following impact on the Class A2 Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf)

DBRS Morningstar assesses the following impact on the Class B Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 25% increase of the LGD, ceteris paribus would not lead to a change in the rating on the Class B Notes
-- 50% increase of the LGD, ceteris paribus would not lead to a change in the rating on the Class B Notes
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (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: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 October 2019

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
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.dbrs.com/about/methodologies.

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

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

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