Press Release

DBRS Morningstar Confirms Rating on Asti Group PMI S.r.l. Following Transaction Amendment

Structured Credit

December 22, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed its A (high) (sf) rating on the Class A Notes issued by Asti Group PMI S.r.l. (the Issuer or Asti Group PMI).

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal payable on or before the maturity date in October 2092.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- The amendments to the transaction that became effective on 21 December 2021 (the Amendment);
-- No purchase termination events;
-- The overall portfolio performance as of the October 2021 payment date, particularly with regard to low levels of delinquencies and defaults;
-- The maintained base case assumptions, considering the quarterly performance data that DBRS Morningstar received, and the probability of default (PD), recovery rate, and expected loss assumptions considering the worst-case portfolio composition allowed under the eligibility criteria;
-- The current available credit enhancement to the Class A Notes to cover expected losses assumed in line with the A (high) (sf) rating level; and
-- The current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Asti Group PMI is a securitisation collateralised by a portfolio of secured and unsecured loans to Italian small and medium-size enterprises (SMEs), entrepreneurs, artisans, and producer families granted by Cassa di Risparmio di Asti S.p.A. (CR Asti; 73.1% of the portfolio as at the October 2021 payment date) and Cassa di Risparmio di Biella e Vercelli S.p.A. (BiverBanca; 26.9% of the portfolio).

CR Asti and BiverBanca (together, the Originators) also act as the Servicers of their respective portfolios. BiverBanca has been part of the CR Asti banking group since 2012 and was merged by CR Asti’s absorption of the entity on 6 November 2021. CR Asti succeeded to all the rights and obligations held by BiverBanca, including the ownership of the portfolios.

AMENDMENT
On 21 December 2021, the following amendments were made to the transaction:
-- The revolving period was extended by 24 months to October 2023 and certain concentration limits were changed;
-- The cumulative gross default ratio triggers that stop the revolving period were changed; and
-- Defaulted loans and loans in arrears by 31 days or more were repurchased.

Under the terms of the Amendment, the following concentration limits have been modified:
-- Maximum weighted-average (WA) residual life of the secured portfolio increased to 13.5 years from 13.0 years;
-- Maximum top 10 borrowers exposure decreased to 8.0% from 9.0%;
-- Maximum amount of fixed-rate loans increased to 23% from 20%;
-- Minimum WA interest rate for fixed-rate loans decreased to 2.7% from 2.9%;
-- Maximum set-off amount decreased to 3.0% from 4.0%;
-- Maximum amount of semiannual and annual loans decreased to 30% from 35%;
-- Maximum amount of bullet loans (or with other type of amortisation plan) decreased to 2.5% from 5.0%; and
-- Maximum amount of loans guaranteed by Confidi decreased to 8% from 11%.

Additionally, the thresholds for the cumulative default trigger, the breach of which will result in the termination of the revolving period, have been modified as follows:
-- 1.5% until the January 2022 payment date;
-- 2.0% until the April 2022 payment date;
-- 2.5% until the July 2022 payment date, down from 3.0%;
-- 2.5% until the October 2022 payment date, down from 4.0%;
-- 3.0% until the January 2023 payment date, down from 5.0%;
-- 3.5% until the April 2023 payment date, down from 6.0%;
-- 4.0% until the July 2023 payment date, down from 6.5%; and
-- 4.5% until the October 2023 payment date, down from 7.0%.

The aggregate proceeds that the Issuer receives within the scope of these amendments will be credited to the collection account and will form part of the available funds on the next payment date.

PORTFOLIO PERFORMANCE
As at the October 2021 payment date, the overall portfolio consisted of 11,232 loans with an aggregate principal balance of EUR 1,185.3 million, which excludes EUR 5.3 million of loans classified as defaulted.

The delinquency ratio, defined as the ratio between the outstanding balance of loans in arrears by more than 60 days (excluding defaulted loans) and the outstanding balance of the portfolio as of the end of the previous collection period (including defaulted loans), was 0.6%. The cumulative default ratio was 0.6% of the initial portfolio.

REVOLVING PERIOD
The transaction closed in March 2017 and, following the Amendment, its revolving period is scheduled to end in October 2023. During this period, the Originators may sell new receivables to the Issuer subject to certain conditions and limitations. The revolving period will end prematurely upon the occurrence of a purchase termination event, which includes gross cumulative defaults exceeding certain thresholds, the Issuer’s inability to fully replenish the cash reserve, and the Originators’ insolvency.

Additionally, if the Issuer terminates the appointment of the Originators as the Servicers or if the bank does not fulfil its own obligations under the transaction documents, the revolving period will end prematurely. The purchase of new receivables is funded through principal collections as well as excess spread to make up for any defaulted loans. To date, a purchase termination event has not occurred.

PORTFOLIO ASSUMPTIONS
Based on the updated historical data provided by the Originators and considering the performance observed, DBRS Morningstar maintained its base case PD assumption at 4.9%. Additional adjustments were applied in the context of the current coronavirus pandemic.

DBRS Morningstar’s analysis assumed the worst-case portfolio allowed by the eligibility criteria and portfolio limits, as well as the maximum loan-term modifications that allow loans’ maturities extensions. At the A (high) (sf) rating level, DBRS Morningstar applied portfolio default and recovery assumptions of 60.5% and 35.5%, respectively, in its analysis.

CREDIT ENHANCEMENT
Credit enhancement for the Class A Notes (42.1%) is provided by the subordination of the more junior obligations and the cash reserve account.

A cash reserve account, funded at closing with EUR 14.0 million through the proceeds of the subordinated loan granted by the Originators, is available to cover senior expenses and missed interest payments on the Class A Notes. The required level for the cash reserve is set at 2.0% of the Class A Notes balance, subject to a EUR 7.0 million floor. On the payment date on which the Class A Notes will be redeemed in full, the cash reserve target amount will be reduced to EUR 0.

An additional cash reserve is also available during the revolving period to cover senior expenses, missed interest payments on the Class A Notes, and the acquisition of additional receivables.

The structure also benefits from a set-off reserve account, funded at closing with EUR 17.8 million (1.5% of the initial portfolio balance), which will be available immediately following the occurrence of an insolvency event in respect of the Originator. The target set-off reserve amount is EUR 17.8 million during the revolving period and 1.5% of the portfolio balance afterward.

BNP Paribas Securities Services, Milan branch (BNP Milan) acts as transaction bank for the transaction. Based on DBRS Morningstar’s private rating on BNP Milan, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.

COVID-19
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many SME transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 18 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated Structured Credit transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

ESG CONSIDERATIONS
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/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: Rating CLOs Backed by Loans to European SMEs (28 June 2021).

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.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

DBRS Morningstar reviewed the legal documents provided in the context of the Amendment, executed on 21 December 2021. A review of any other transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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/381451/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 this rating include performance data relating to the receivables provided by the Originators directly or through the arranger UniCredit Bank AG.

DBRS Morningstar received the following data information, split by Originator:
-- Static quarterly default data from Q1 2009 to Q2 2021, split by mortgage and nonmortgage loans;
-- Dynamic quarterly delinquency data from Q1 2009 to Q2 2021, split by mortgage and nonmortgage loans; and
-- Dynamic quarterly prepayment data from Q1 2009 to Q2 2021.

DBRS Morningstar also considered servicer and investor reports provided by the Originators and BNP Milan, and loan-by-loan data from the European DataWarehouse GmbH in its analysis.

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 this rating 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 action on this transaction took place on 16 March 2021, when DBRS Morningstar confirmed its rating on the Class A Notes at A (high) (sf).

The lead analyst responsibilities for this transaction have been transferred to Ilaria Maschietto.

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

Sensitivity Analysis: 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):
-- PD Rates Used: Base case PD of 4.9%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 35.5% at the A (high) (sf) rating level, and a 10% and 20% decrease in the base case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS Morningstar concludes that a hypothetical increase of base case PD by 20% or a hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (low) (sf) and A (sf), respectively. A scenario combining both an increase in the base case PD by 10% and a decrease in the base case Recovery Rate by 10%, ceteris paribus, would likewise lead to a downgrade of the Class A Notes to A (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. 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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Ilaria Maschietto, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 16 March 2017

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The rating methodologies used in the analysis of this transaction can be found at: http://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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