Press Release

DBRS Morningstar Upgrades Ratings on Siena PMI 2016 S.r.l. - Series 2-2019

Structured Credit

June 21, 2022

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the bonds issued by Siena PMI 2016 S.r.l. - Series 2-2019, as follows:

-- Class B Notes to AAA (sf) from AA (high) (sf)
-- Class C Notes to AA (high) (sf) from A (low) (sf)
-- Class D Notes to CCC (sf) from CC (sf)

The rating on the Class B Notes addresses the timely payment of interest and the ultimate payment of principal on or before the final legal maturity date in February 2060, in accordance with the transaction documentation. The ratings on the Class C and Class D Notes address the ultimate payment of interest and ultimate repayment of principal on or before the final legal maturity date. The Issuer also issued Class J Notes, which DBRS Morningstar does not rate.

The rating actions 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 May 2022 payment date;
-- The one-year base case probability of default (PD) and updated default and recovery rates on the remaining pool of receivables;
-- Current available credit enhancement to the rated notes to cover the expected losses at the respective rating levels; and
-- The current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans to small and medium-sized enterprises (SME), entrepreneurs, artisans, and producer families based in Italy. The loans were granted by Banca Monte dei Paschi di Siena SpA (BMPS or the servicer). A small percentage of the portfolio (totalling approximately 2.5% of the outstanding notional) was originated by Banca Antonveneta S.p.A., Banca Agricola Mantovana S.p.A., and Banca Toscana S.p.A. before they merged into BMPS.

PORTFOLIO PERFORMANCE
As of the May 2022 payment date, loans that were two to three months in arrears represented 0.0% of the outstanding portfolio balance, unchanged from 0.0% as of May 2021. The 90+ days delinquency ratio was 0.0% of the outstanding portfolio balance, down from 0.1% in the same period, and the cumulative default ratio remained at 0.0%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of receivables and updated its base case default and recovery rate assumptions on the outstanding portfolio to 20.7% and 63.0%, respectively, at the B (sf) rating level. DBRS Morningstar updated its one-year base case PD including coronavirus adjustments to 4.7%.

CREDIT ENHANCEMENT
As of the May 2022 payment date, the credit enhancements to the Class B, Class C, and Class D Notes stood at 85.0%, 52.6%, 21.7%, respectively, up from 61.8%, 38.4%, and 15.6%, respectively, one year ago. The credit enhancements to the notes are provided by the subordination of the junior class of notes. The increase in the credit enhancements to the rated notes prompted the upgrade of the ratings.

The transaction includes a cash reserve, which is available to cover senior fees and interest on the Class B and Class C Notes. The cash reserve amortises subject to the target level being equal to 2.0% of the outstanding balance of the Class B and Class C Notes. As of the May 2022 payment date, the cash reserve was at its target level of EUR 9.1 million.

BNP Paribas Securities Services SCA/Milan (BNP Milan) acts as the account bank for the transaction. Based on the 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 B Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

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 on receivables granted to obligors operating in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus. As per DBRS Morningstar’s assessment, 11.0% of the outstanding portfolio balance, represented industries classified in the high-risk economic sectors. This led the underlying one-year PDs to be multiplied by 1.5 times. DBRS Morningstar also conducted an additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 24 March 2022. 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/394150/baseline-macroeconomic-scenarios-for-rated-sovereigns-march-2022-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 10 February 2022, DBRS Morningstar updated its 18 May 2020 commentary outlining the impact of the Coronavirus Disease (COVID-19) crisis on the performance of DBRS Morningstar-rated structured credit transactions in Europe almost two years on. For more details, please see: https://www.dbrsmorningstar.com/research/392167/two-years-into-covid-19-risks-to-european-structured-credit-transactions and https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Rating CLOs Backed by Loans to European SMEs” (10 June 2022).

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 surveillance section of 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.

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 these ratings include investor reports provided by Securitisation Services S.p.A. 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 ratings, 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 purpose 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.

The last rating action on this transaction took place on 22 June 2021, when DBRS Morningstar confirmed its ratings on the Class A2 and Class D Notes at AAA (sf) and CC (sf), respectively, as well as upgraded its ratings on the Class B and Class C Notes to AA (high) (sf) and A (low) (sf) from AA (sf) and BBB (low) (sf), respectively. As of the February 2022 payment date, the Class A2 Notes were fully repaid.

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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):

-- PD Rates Used: base case PD of 4.7%, a 10% and 20% increase of the base case PD.
-- Recovery Rates Used: base case recovery rates of 63.0%, a 10% and 20% decrease in the base case recovery rates.
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 the base case PD by 20%, or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation on the Class B Notes at AAA (sf) and the Class C Notes at AA (high) (sf). 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 not have an impact on the aforementioned ratings either. The rating on the Class D Notes would not be affected by any change in either the PD or recovery rates.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://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.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 25 June 2019

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
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.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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