Press Release

DBRS Morningstar Confirms Ratings on Three Credico Finance RMBS Transactions

RMBS

July 26, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) ratings on the Class A Notes issued by Credico Finance 9 S.r.l. (CF9), Credico Finance 12 S.r.l. (CF12), and Credico Finance 16 S.r.l. (CF16).

The ratings on the Class A Notes address the timely payment of interest and the ultimate payment of principal by the respective final maturity dates.

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the respective latest payment dates;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

CF9, CF12, and CF16 are securitisations of Italian residential mortgage loans originated and serviced by multiple co-operative and independent Italian banks (Banche di Crédito Cooperativo or BCCs), each belonging to ICCREA Banca S.p.A.’s (ICCREA) network. ICCREA covers the role of operating bank and backup servicer and is responsible for supporting the BCCs’ payment services, funding techniques, regulatory activities, and administration activities. Zenith Service S.p.A. covers the role of backup servicer facilitator for CF12 and CF16 only.

The transactions are structured with several combined (principal plus interest) waterfalls, one for each BCC, where each portfolio supports a portion of the Class A Notes on the basis of the respective contribution to the aggregate portfolio. Upon a breach of certain conditions (cross-collateral events), the waterfalls will collapse into a unique combined waterfall. There are also other mechanisms in place for the purpose of each portfolio supporting the others, if certain conditions are met (detrimental event and disequilibrium event).

PORTFOLIO PERFORMANCE
The three portfolios are performing within DBRS Morningstar’s expectations. Delinquencies are low, with 60- to 90-day and 90+-day arrears ratios as follows:
-- CF9: 0.31% and 0.18%, respectively, as of the May 2022 cut-off date,
-- CF12: 0.13% and 0.75%, respectively, as of the April 2022 cut-off date, and
-- CF16: 0.06% and 0.12%, respectively, as of the April 2022 cut-off date.

The most recent gross cumulative default ratios as of the latest portfolio cut-off date for each transaction are as follows:
-- CF9: 0.71%, slightly up from 0.69% as of the latest annual review of the transaction,
-- CF12: 1.23%, up from 1.14% as of the latest annual review of the transaction, and
-- CF16: 0.14%, slightly up from 0.12% as of the latest annual review of the transaction.

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 as follows:
-- CF9: 6.10% and 10.10%, respectively,
-- CF12: 6.29% and 10.73%, respectively, and
-- CF16: 6.38% and 10.51%, respectively.

When present, changes in PD and LGD assumptions compared with previous annual reviews are typically driven by portfolio deleveraging and/or changes in the pool compositions.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio provides credit enhancement to the rated notes across the three transactions. It also includes an amount equal to the difference between the cash reserve and a portion of the outstanding balance of the Class A Notes in CF9 and CF12.

As of the latest payment date for each transaction, credit enhancement levels were as follows:
-- Class A Notes in CF9: 86.5%, up from 71.1% as of the latest annual review of the transaction,
-- Class A Notes in CF12: 65.6%, up from 54.5% as of the latest annual review of the transaction, and
-- Class A Notes in CF16: 38.6%, up from 33.7% as of the latest annual review of the transaction.

CF9, CF12, and CF16 benefit from cash reserves (composed of a single reserve for each BCC) available to cover senior expenses, fees, interest payments on the Class A Notes, as well as swap payments for CF9 only. Additionally, the reserves are available to provide credit support to the rated notes. The credit support is equal to the difference between the cash reserve and 4% and 3%, respectively, of the outstanding Class A Notes for CF9 and CF12, respectively. For CF16, the credit support is up to 80% of the cash reserve target amount.

For CF9, the cash reserve is amortising and is reduced by 1.0% annually in January each year (in case no drawings have been made). As of the latest payment date, the cash reserve was EUR 26.2 million. For CF12, the cash reserve is nonamortising and, since closing, it has remained at its target level of EUR 41.7 million. For CF16, the cash reserve is currently at its floor level of EUR 16.9 million.

BNP Paribas Securities Services, Milan branch acts as the account bank across the three transactions. Based on DBRS Morningstar’s private rating on the account bank, the downgrade provisions outlined in the transactions’ documents, and structural mitigants inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

For CF9, J.P. Morgan Securities plc is the swap counterparty and the swap counterparty’s obligations under the swap agreements are guaranteed by JPMorgan Chase Bank, N.A. The swap documents do not include DBRS Morningstar collateral posting thresholds; however, DBRS Morningstar’s private rating on the swap counterparty is consistent with the first and second rating thresholds, as defined in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

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 transactions’ structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (19 May 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 transactions in accordance with the principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

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 Accounting Partners S.p.A., servicer reports and additional information provided by ICCREA, 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 not 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 actions on these transactions were as follows:
-- CF9 and CF16: 25 October 2021, when DBRS Morningstar confirmed its ratings on the Class A Notes in each transaction at AAA (sf),
-- CF12: 26 July 2021, when DBRS Morningstar confirmed its rating on the Class A Notes at AAA (sf).

The lead analyst responsibilities for these transactions have been transferred to Pascale Kallas.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available at 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):
-- 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 Issuers are as follows:
-- CF9: 6.10% and 10.10%, respectively,
-- CF12: 6.29% and 10.73%, respectively,
-- CF16: 6.38% and 10.51%, 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 of CF9 as an example, if the LGD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (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 remain at AAA (sf).

CF 9 – Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

CF 12 – Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

CF 16 – Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

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: Pascale Kallas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
-- CF9: 11 July 2011
-- CF12: 12 August 2013
-- CF16: 14 November 2016

DBRS Ratings GmbH
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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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