DBRS Morningstar Confirms Ratings on Fucino RMBS S.r.l.
RMBSDBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (low) (sf) and A (low) (sf) ratings on the Class A and Class B Notes, respectively, issued by Fucino RMBS S.r.l. (the Issuer).
The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the final maturity date. The rating on the Class B Notes addresses the ultimate payment of interest and principal on or before the final maturity date.
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the March 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 notes to cover the expected losses at their respective rating levels.
Fucino RMBS S.r.l. is a securitisation of residential mortgage loans granted by Banca del Fucino S.p.A. (Banca del Fucino) to individuals and families resident in Italy. Banca del Fucino services the portfolio, with Centotrenta Servicing S.p.A. acting as backup Servicer. The portfolio is concentrated in central Italy, especially in the regions of Lazio and Abruzzo. The transaction closed in April 2019, when the special purpose vehicle issued one senior class of floating-rate notes, one mezzanine class of floating-rate notes, and one junior class of floating-rate and variable return notes, namely the Class A, Class B, and Class J Notes. The final maturity date is in December 2060.
PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS Morningstar’s initial expectations. As of the February 2020 cut-off date, loans that were two- to three-months in arrears represented 0.3% of the outstanding portfolio balance, while the 90+ delinquency ratio was 1.2%. No defaulted loans have been recorded so far.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 6.8% and 7.2%, respectively.
CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement and does not include the cash reserve. As of the March 2020 payment date, credit enhancement to the Class A and Class B Notes was 18.6% and 13.8%, respectively, up from 14.0% and 10.0% as of the DBRS Morningstar initial rating date in April 2019.
The transaction structure benefits from an amortising cash reserve, which provides liquidity support and is available to cover senior fees, swap payments, and interest shortfalls on the Class A Notes. The reserve is currently at its target level of EUR 4.0 million, which accounts for 3.5% of the outstanding balance of the rated notes.
BNP Paribas Securities Services SCA, Milan branch acts as the account bank for the transaction. Based on the private rating of BNP Paribas Securities Services SCA, Milan branch, 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 ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
Three swap transactions are in place: two to hedge the basis risk, and one to hedge the fixed-floating interest rate risk. J.P. Morgan AG acts as the swap counterparty. DBRS Morningstar has given limited credit only to the fixed-floating swap transaction, as the swap documentation is not fully consistent with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
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.
ESG CONSIDERATIONS
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.
Notes:
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (13 December 2019).
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 Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include investor reports provided by Centotrenta Servicing S.p.A., servicer reports provided by Banca del Fucino, 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 rating, 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.
This is the first rating action on this transaction since the initial rating date.
The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.
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 6.8% and 7.2%, 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 as example, if the LGD increases by 50%, the rating on the Class A Notes would be expected to remain at AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to fall to BBB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to fall to BBB (high) (sf).
Class A 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 (high) (sf)
-- 50% increase in PD, expected rating of BBB (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 (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)
Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (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 BBB (high) (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)
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 U.S. regulations only.
Lead Analyst: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 April 2019
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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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)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Master European Structured Finance Surveillance Methodology (13 December 2019)
https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020)
https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019) and European RMBS Credit Model 1.0
https://www.dbrsmorningstar.com/research/354403/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda
-- Interest Rate Stresses for Structured Finance Transactions (10 October 2019)
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019)
https://www.dbrsmorningstar.com/research/350907/derivative-criteria-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.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.
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