EUR 685.9 million of securities rated
London, 06 December 2017 -- Moody's Investors Service ("Moody's") assigned the following definitive
rating to the debts issued by BCC SME Finance 1 S.r.l.
(the Issuer):
....EUR 449.9M Class A2 Asset Backed
Floating Rate Notes due May 2060, Assigned Aa2 (sf)
In addition, Moody's has today confirmed the rating of Class A1
notes issued by BCC SME Finance 1 S.r.l. The rating
action concludes the review of the Class A1 notes whose rating was placed
on review for downgrade on 27 July 2017 following Moody's revised approach
to assessing counterparty risks in structured finance transactions (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_369760).
....EUR 1533M (current outstanding balance
EUR 30.2M) Class A1 Asset Backed Floating Rate Notes due May 2060,
Confirmed at Aa2 (sf); previously on Jul 27, 2017 Aa2 (sf)
Placed Under Review for Possible Downgrade
Following the restructuring EUR 656,680,000 Class B Notes
will be resized to EUR 205,764,974.54 and the existing
Class B noteholders will receive a scheduled redemption amount by way
of set off against the subscription price of the newly created Class A2
Notes. Moody's has not assigned ratings to the EUR 205,764,974.54
of 28 Class B Asset-Backed Floating Rate Notes due May 2060 .
BCC SME Finance 1 S.r.l. is an existing cash securitisation
of secured and unsecured amortizing loans granted to self-employed
and small and medium-sized enterprises ("SME") domiciled in Italy,
extended by Mediocredito Trentino-Alto Adige S.p.A.
(Baa3/P-3) and 27 Cooperative Banks (i.e. CR Vallagarina,
CR Trento ex-Aldeno, CR Alto Garda, CR Adamello,
CR Giudicarie, CR Bolzano, CR Lavis, CR Alto Garda ex
Valle dei Laghi, CR Dolomiti, CR Valdisole, CR Alta
Valsugana, CR Rovereto, CR Tuenno, CR Trento,
Centroveneto, BCC Caraglio, BCC Cherasco, BCC Alba,
Cred.Coop.Romagnolo, Emilbanca, BCC Alto Vicentino,
Centromarca, BCC Pianfei, Romagna Banca, BCC San Giorgio,
BCC San Biagio and Centromarca Banca ex S.Stefano; all cooperative
banks and Mediocredito Trentino-Alto Adige referred together as
"BCCs"), and arranged by the Cassa Centrale Banca S.p.A.
(Baa3 LT Deposit/P-3 ST Deposit).
The 28 portfolios are not cross-collateralised at inception,
but triggers are put in place to cross-collateralise the portfolios
if the collateral performance deteriorates significantly. Each
waterfall repays the Class A and Class B Notes allocated to the relevant
originator's portfolio. Because each sub pool can experience different
levels of performance (e.g. delinquencies, defaults
and prepayments), the payment waterfall structure is unique and
envisions various scenarios and triggers in paying down the Notes.
Moreover, as the defaults can vary between the different sub-pools
the amounts that have been used of each cash reserve can also vary considerably
between different waterfalls and the excess spread may leak out from the
transaction even if the cash reserve of some other originators are not
at their target level. As mentioned, in order to rebalance
the cash reserve or the theoretical speed at which the notes are repaid,
there are various triggers in place.
RATINGS RATIONALE
The originators have restructured the outstanding BCC SME 1 S.r.l.
transaction with the original securitized balance of EUR 2,189.7
million. The amendments include: i) a revised capital structure
with an inclusion of a newly issued Class A2 notes; ii) a resized
cash reserve balance at 3.011% of the outstanding portfolio
as of 29 November 2017 iii) revision of the eligible investments trigger
to Baa1 from Baa2; iv) substitution of the account bank from Deutsche
Bank S.p.A to BNP Paribas Securities Services (Aa3 LT Deposits/P-1
ST Deposits) acting through its Milan Branch.
The current capital structure includes the existing Class A notes renamed
into Class A1 as well as the issuance of the new Class A2 notes.
The two Class A notes are ranked parri-passu and the interest and
principal are paid pro-rata.
The rating action on the outstanding Class A1 notes is prompted by the
amendment in the definition of the eligible investments from Baa2 to Baa1
as well as the replacement of the account bank from Deutsche Bank S.p.A
to BNP Paribas Securities Services, Milan Branch. Class A1
notes were previously placed on review for downgrade due to the exposure
to the account bank and eligible investments definition following the
release of the updated approach to assessing the risk posed by the cash
that is held in market investments as part of the consolidated methodology
to evaluating counterparty risks in structured finance transactions published
in July 2017. (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1038135).
The newly assigned rating of Aa2 (sf) to Class A2 notes is primarily based
on the analysis of the credit quality of the underlying portfolio,
the structural integrity of the transaction, the roles of external
counterparties and the protection provided by credit enhancement.
Moody's notes as credit strengths of the transaction the following factors:
(i) the granularity of the portfolio (with an effective number of 1,623
at borrower level); (ii) 70.1% of the portfolio secured
by first lien mortgage; and (iii) the cross-collateralization
trigger in case of poor performance of the portfolio, i.e.
a cumulative default rate above 7%.
Moody's notes that the transaction also features a number of credit weaknesses,
such as: (i) there are 28 separate waterfalls that allow some leak
out of excess spread in certain scenarios; (ii) there is some exposure
to commingling and set-off risks. The total set-off
exposure is estimated by Moody's at 1.9% of EUR 685.9
as per Moody's Counterparty Methodology (Moody's Approach
to Assessing Counterparty Risks in Structured Finance, available
at: (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1038135);
and (iii) high industry concentration in the building and real estate
sector of the pool (around 40.7% of the portfolio,
according to Moody's industry classification). These characteristics,
amongst others, were considered in Moody's analysis and ratings.
KEY COLLATERAL ASSUMPTIONS
Mean default rate: Moody's assumed a mean default rate of 18%
over a weighted average life of 5.3 years (equivalent to a B1/B2
proxy rating as per Moody's Idealized Default Rates). This
assumption is based on: (1) the performance of the transaction since
closing in 2012; and (2) the characteristics of the loan-by-loan
portfolio information. Moody's took also into account the
current economic environment and its potential impact on the portfolio's
future performance, as well as industry outlooks or past observed
cyclicality of sector-specific delinquency and default rates.
Portfolio credit enhancement: Moody's assumed portfolio credit
enhancement of 25%, that takes into account the Italian current
local currency country ceiling of Aa2.
Recovery rate: Moody's assumed a 55% stochastic mean
recovery rate, primarily based on the characteristics of the collateral-specific
loan-by-loan portfolio information, complemented by
the available historical vintage data.
Default rate volatility: the aforementioned assumptions correspond
to a coefficient of variation (i.e. the ratio of standard
deviation over the mean default rate explained above) of 49.75%.
As of 29 November 2017, the current underlying portfolio is composed
of a portfolio of 4,585 contracts amounting to EUR 685.9
million. The top industry sector in the pool, in terms of
Moody's industry classification, is Construction & Building
representing 40.7% of the total pool. The top borrower
represents 0.29% of the portfolio and the effective number
of obligors is 1,623. The assets were originated mainly between
2006 and 2011 and have a weighted average seasoning of 8.8 years
and a weighted average remaining term of 9.4 years. The
interest rate is floating for 96.9% of the pool while the
remaining part of the pool bears a fixed interest rate. The weighted
average spread on the floating portion is 1.6%, while
the weighted average interest on the fixed portion is 3.9%.
Geographically, the pool is concentrated mostly in Trentino Alto
Adige (33.8%) and Piemonte (29.8%).
In the current portfolio there are 4.3% delinquent loans
more than 30 days in arrears, out of which 2.4% are
90+ arrears.
KEY TRANSACTION STRUCTURE FEATURES
Reserve fund: The transaction benefits from EUR 20.65 million
cash reserve funded from the existing cash reserve balance following the
restructuring by the 28 originators, equivalent to 3.011%
of the outstanding balance of the pool of assets. The reserve fund
provides both credit protection to the notes at maturity and liquidity
protection to the notes over the life of the transaction.
Hedging agreements: The portfolio comprises floating rate loans
(96.9%) and fixed rate loans (3.1%),
whereas the rated notes pay 6-month Euribor plus a spread.
In order to hedge the basis risk stemming from the floating rate loans,
the issuer entered into two hedging agreements with J.P.
Morgan Securities plc (A1 LT Issuer Rating/P-1 St Issuer Rating)
as swap counterparty. The fixed portion of the portfolio is unhedged.
Moody's has applied a haircut to the portfolio yield to account for the
spread compression due to the earlier amortization of loans with higher
interest rate and for unhedged part of the portfolio.
COUNTERPARTY RISK ANALYSIS
All 28 originators also act as servicers of the loans for the Issuer,
Cassa Centrale Banca S.p.A. (Baa3(cr),P-3(cr))
acts as the back-up servicer.
All of the payments under the assets in the securitised pool are paid
into the collection account at Cassa Centrale Banca S.p.A.
(Baa3(cr),P-3(cr)). There is a daily sweep of the
funds held in the collection account into the Issuer account. The
Issuer account has been moved to BNP Paribas Securities Services,
Milan Branch from Deutsche Bank S.p.A.
BNP Paribas Securities Services(Aa3 LT Deposits/P-1 ST Deposits)
acting through its Milan Branch acts as issuer account bank with a transfer
requirement if the rating of the account bank falls below Baa2.
Moody's has taken into account the commingling risk within its cash flow
modelling considering an exposure of 1 month of collections.
STRESS SCENARIOS:
Moody's also tested other set of assumptions under its Parameter Sensitivities
analysis. For instance, if the assumed default rate of 18%
used in determining the initial rating was changed to 22.5%
and the portfolio credit enhancement of 25% was changed to 30%,
the model-indicated rating for Series A1 and Series A2 of Aa2 (sf)
would be A1 (sf). For more details, please refer to the full
Parameter Sensitivity analysis included in the New Issue Report of this
transaction.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Global Approach
to Rating SME Balance Sheet Securitizations" published in August 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
FACTORS THAT WOULD LEAD TO UPGRADE OR DOWNGRADE OF THE RATINGS:
The notes' ratings are sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The evolution of the associated counterparties
risk, the level of credit enhancement and Italy's country risk could
also impact the notes' ratings.
The ratings address the expected loss posed to investors by the legal
final maturity of the notes. In Moody's opinion, the structure
allows for timely payment of interest and ultimate payment of principal
with respect to the notes by the legal final maturity. Moody's
ratings address only the credit risk associated with the transaction.
Other non-credit risks have not been addressed but may have a significant
effect on yield to investors.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's describes the stress scenarios it has considered for this
rating action in the section "Ratings Rationale" of this press
release.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Gabriele Gramazio
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Monica Curti
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
