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Rating Action:

Moody's assigns definitive rating to Italian RMBS notes issued by Brera Sec S.r.l.

11 Dec 2017

Milan, December 11, 2017 -- Moody's Investors Service ("Moody's") has today assigned definitive long-term credit ratings to the notes issued by BRERA SEC S.R.L.:

....EUR 6,025,000,000 Class A Residential Mortgage Backed Floating Rate Notes due November 2071, Assigned Aa2 (sf)

Moody's has not assigned ratings to the EUR 1,067,309,000 Class B Residential Mortgage Backed Fixed Rate and Additional Return Notes due November 2071.

The transaction is a multi-seller securitization transaction rated by Moody's with loans originated by five banks, which are part of Intesa Sanpaolo Banking Group. Loans have been originated by Intesa Sanpaolo S.p.A.("ISP", Baa1/P-2), Banco di Napoli S.p.A. ("BdN", not rated), Cassa di Risparmio in Bologna S.p.A. ("CdRiB", not rated), Cassa dei Risparmi di Forlì e della Romagna S.p.A.(not rated) and Cassa di Risparmio del Friuli Venezia Giulia S.p.A. (not rated). The assets supporting the notes, which amount to around EUR 7,092 million, consist of prime mortgage loans extended to individuals with a first economic lien on properties located in Italy.

RATINGS RATIONALE

The rating takes into account the credit quality of the underlying mortgage loan pool, from which Moody's determined the MILAN Credit Enhancement ("MILAN CE") and the portfolio expected loss, as well as the transaction structure and legal considerations. The expected portfolio loss of 2.6% and the MILAN CE of 11% serve as input parameters for Moody's cash flow model and tranching model, which is based on a probabilistic lognormal distribution.

The key drivers for the portfolio expected loss of 2.6%, which is in line with the Italian RMBS sector average, take into account: (i) 10 years of vintage data from originators' book based on loans with similar characteristics as the ones in the securitized pool; (ii) 5 years of vintage recovery data from the ISP's and BdN's books; (iii) lack of historical data on recoveries for the other three originators; (iv) the performance of previous RMBS transactions launched by these originators; (v) the stable outlook that Moody's has on Italian RMBS; and (vi) benchmarking with other comparable Italian RMBS transactions.

The key drivers for the MILAN CE of 11%, which is similar to the Italian RMBS sector average, take into account: (i) the weighted average (WA) loan-to-value (LTV) at around 67.23%; (ii) the seasoning of the portfolio which is around 3.7 years; (iii) the presence of construction loans in the pool, approximately 7% and (iv) benchmarking with other Italian RMBS transactions.

Transaction structure: The transaction benefits from an amortising cash reserve sized at 2.5% of the initial balance of the rated notes and fully funded at closing through a subordinated loan. The cash reserve is replenished in the waterfall immediately after payment of interest on the Class A notes, therefore mainly acting as a source of liquidity for the Class A notes. The cash reserve will be reduced to zero after the Class A notes are fully redeemed. Moreover the transaction also benefits from principal to pay interest mechanism for the rated notes.

Operational risk analysis: Each bank will service its own portfolio, with ISP assuming the role of master servicer at closing. To ensure payment continuity over the transaction's lifetime, the transaction documents incorporate estimation language according to which the calculation agent, Securitisation Services S.p.A. (not rated), will prepare the payment report based on estimates if the servicer report is not available. In such a case, only interest on the Class A notes and items senior thereto will be paid. Neither Back-up Servicer nor Back-up Servicer Facilitator was appointed at closing although the transaction benefits from the presence of an independent cash manager, Securitisation Services S.p.A. (not rated).

Interest Rate Risk Analysis: The portfolio comprises pure floating rate loans (26.0%), floating rate loans with a cap (4.3%), fixed rate loans (63.0%), as well as short-term fixed (1.2%) and short-term floating (5.5%) loans, whereas the rated notes pay 3-month Euribor plus a spread (0.65%) with a cap of 5%. Basis mismatch risk or fixed-floating risk remain unhedged in the transaction. Moody's has applied a haircut to the portfolio yield to account for these risks while also considering spread compression due to the earlier amortization of loans with higher interest rate and for the potential renegotiation capabilities that are quite significant for this transaction.

The definitive 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 by the legal final maturity with respect to the Class A. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

Stress Scenarios:

Moody's Parameter Sensitivities: If the portfolio expected loss was increased from 2.6% to 7.8% of the current portfolio balance, and the MILAN CE remained at 11%, the model output indicates that the Class A would still achieve Aa2(sf), assuming that all other factors remained equal. Moody's Parameter Sensitivities quantify the potential rating impact on a structured finance security from changing certain input parameters used in the initial rating.

Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed.

The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.

The principal methodology used in this rating was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The analysis undertaken by Moody's at the initial assignment of a rating for RMBS security may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Please see Moody's Approach to Rating RMBS Using the MILAN Framework for further information on Moody's analysis at the initial rating assignment and the on-going surveillance in RMBS.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that may lead to an upgrade of the ratings include significantly better than expected performance of the pool and increase in the credit enhancement of the notes together with an increase of the Italian Local Currency Country Risk Ceiling.

Factors that may cause a downgrade of the ratings include significantly different realized losses compared with our expectations at close due to either a change in economic conditions from our central scenario forecast or idiosyncratic performance. For instance, should economic conditions be worse than forecast, the higher defaults and loss severities resulting from a greater unemployment, worsening household affordability and a weaker housing market could result in downgrade of the ratings. A deterioration in the notes available credit enhancement could result in a downgrade of the ratings. Additionally counterparty risk could cause a downgrade of the rating due to a weakening of the credit profile of transaction counterparties. Finally, unforeseen regulatory changes or significant changes in the legal environment may also result in changes of the ratings.

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 quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

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.

Francesca Pilu
Vice President - Senior Analyst
Structured Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Barbara Rismondo
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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