Press Release

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

Structured Credit

May 04, 2023

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

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 portfolio performance, in terms of the level of delinquencies and defaults, as of the January 2023 payment date;
-- The one-year base case probability of default (PD) and default and recovery rates on the receivables;
-- No early amortisation event has occurred;
-- The current available credit enhancement to the Class A Notes to cover the expected losses at the AA (low) (sf) rating level.

The transaction is a securitisation collateralised by a portfolio of secured and unsecured loans granted by Cassa di Risparmio di Asti S.p.A. and Cassa di Risparmio di Biella e Vercelli S.p.A. to Italian small and medium-size enterprises (SMEs), entrepreneurs, artisans, and producer families.
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 of BiverBanca’s rights and obligations, including the ownership of the portfolios.

PORTFOLIO PERFORMANCE
As at the January 2023 payment date, the overall portfolio consisted of 11,811 loans with an aggregate principal balance of EUR 1,185.3 million (excluding defaulted loans).

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 1.3%. The cumulative default ratio was 0.3% of the initial portfolio.

REVOLVING PERIOD
The transaction closed in March 2017 and, following the latest amendment in December 2021, 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 servicer 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 AND KEY DRIVERS
DBRS Morningstar maintained the portfolio’s one-year base case PD assumption at 4.9%. DBRS Morningstar’s analysis continues to assume the worst-case portfolio allowed by the eligibility criteria and portfolio limits, as well as the maximum loan-term modifications that allow loans’ maturity extensions. DBRS Morningstar updated its PD and recovery assumptions to 61.5% and 33.7%, respectively, at the AA (low) (sf) rating level.

CREDIT ENHANCEMENT
Credit enhancement to the Class A Notes (42.1%) is provided by the subordination of the more junior obligations and a cash reserve account and has remained stable since the last rating action a year ago, due to the revolving period.

The 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 originators. 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 Succursale Italia (BNP Italia) acts as the transaction account bank for the transaction (succeeding BNP Paribas Securities Services, Milan branch after its acquisition on 1 October 2022). Based on DBRS Morningstar’s private rating on BNP Italia, 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact 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 cash flow engine.

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” (10 June 2022); https://www.dbrsmorningstar.com/research/398252/rating-clos-backed-by-loans-to-european-smes.

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

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.

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/401817/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 servicer and investor reports provided by the Originators and BNP Italia, and loan-by-loan data from 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 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 4 May 2022, when DBRS Morningstar upgraded its rating on the Class A Notes to AA (low) (sf) from A (high) (sf), removing the rating from its Under Review with Positive Implications status.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.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):
-- 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 33.7% at the AA (low) (sf) rating level, 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 the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a downgrade of the Class A Notes rating to A (high) (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the recovery rate by 10% would also lead to a downgrade of the Class A Notes to A (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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Helvia Meana, Assistant 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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