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Rating Action:

Moody's assigns definitive ratings to 2017 Popolare Bari SME S.r.l.

28 Feb 2018

Milan, February 28, 2018 -- Moody's Investors Service ("Moody's") has today assigned the following ratings to the debts issued by 2017 Popolare Bari SME S.r.l. (the Issuer):

....EUR 500.0M Class A1 Asset Backed Floating Rate Notes due December 2057 ("Series 1 Class A1"), Assigned Aa2 (sf)

....EUR 20.0M Class A1 Asset Backed Floating Rate Notes due December 2057 ("Series 2 Class A1"), Assigned Aa2 (sf)

....EUR 150.0M Class A2 Asset Backed Floating Rate Notes due December 2057 ("Series 2 Class A2"), Assigned Aa2 (sf)

....EUR 57.4M Class M Asset Backed Floating Rate Notes due December 2057 ("Series 2 Class M"), Assigned Baa2 (sf)

The transaction represents the restructuring of a transaction completed in March 2017. The series 1 notes have been issued in March 2017, whereas the series 2 were issued today. Series 1 Class A1 issued in March 2017 has amortized down to EUR 329.5M from EUR 500.0M as of last collection period ending in November 2017. The total portfolio comprises the initial portfolio as well as a new portfolio transferred in January 2018, representing around one third of the total portfolio. Moody's has not assigned a rating to the EUR 302.8M Class B1 Asset Backed Floating Rate and Variable Return Notes due December 2057 and EUR 49.0M Class B2 Asset Backed Floating Rate and Variable Return Notes due December 2057.

The transaction is a static cash securitisation of term loans granted by Banca Popolare di Bari S.C.p.a. ("Banca Popolare di Bari", not rated) and Cassa di Risparmio di Orvieto S.p.A. ("CRO", not rated), both part of Banca Popolare di Bari group or other entities subsequently taken over by them, to small and medium-sized enterprises (SMEs) and self-employed individuals located in Italy.

RATINGS RATIONALE

The ratings of the notes are 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.

In Moody's view, the strong credit positive features of this deal include, among others: (i) high granularity of the portfolio with top debtor and top 5 debtors exposure being 1.9% and 5.6% respectively; (ii) the significant proportion of the portfolio secured by real estate properties (i.e. 46.5%); (iii) the static nature of the structure without a revolving period; (iv) the back-up servicer in place since closing; and (v) for the benefit of the Series 1 Class A1, Series 2 Class A1 (together "Class A1") and Class A2 notes, the interest deferral mechanism for the Class M notes (i.e. interests on Class M notes will be subordinated to the principal repayments on the Class A1 and A2 notes in case the cumulative default rate is above 10% of the initial portfolio balance). With this respect, Moody's notes that unpaid interest on Class B is deferrable without accruing interest on interests.

However, the transaction has several challenging features, such as: (i) some concentration in particular in the building and real estate sector of the pool (36% of the portfolio, according to Moody's industry classification); (ii) high concentration in the South of Italy (74%), and, in particular, in the regions of Puglia (31%) and Abruzzo (18%); (iii) Banca Popolare di Bari (not rated) display still a high non-performing ratio and some securitized loans were originated by Banca Tercas (14%) and Caripe (5%), although mainly originated post extraordinary administration; (iv) above market average historical delinquency and default rates for Banca Tercas, below average historical recovery rates and above average historical timing of recoveries; (v) potential renegotiation capabilities: the servicer can renegotiate several terms and conditions of the loans up to certain limits. These renegotiations could affect the loan maturity, the interest rate applied to the loans or could consist in granting principal payment grace periods up to 18 months; and (vi) some limited exposure to set-off risk (around 2%). Finally, Moody's considered the exposure to fixed-floating interest rate risk (12.7% of the pool reference a fixed interest rate) as well as basis risk given the discrepancy between the interest rates paid on the loan contracts compared to the reference rate payable on the notes and no hedging arrangement being in place for the structure.

Key collateral assumptions:

Mean default rate: Moody's assumed a mean default rate of 19% over a weighted average life of 5.6 years (equivalent to a B1/B2 proxy rating as per Moody's Idealized Default Rates). This assumption is based on: (1) the available historical vintage data; (2) the performance of the previous transactions originated by Banca Popolare di Bari and Banca Tercas; and (3) 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.

Default rate volatility: Moody's assumed a coefficient of variation (i.e. the ratio of standard deviation over the mean default rate explained above) of 43%, as a result of the analysis of the portfolio concentrations in terms of single obligors and industry sectors.

Recovery rate: Moody's assumed a 40% 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.

Portfolio credit enhancement: the aforementioned assumptions correspond to a portfolio credit enhancement of approximately 34%, that takes into account the Italian current local currency country risk ceiling (LCC) of Aa2.

As of 17 January 2018, the securitised pool of assets was composed of a portfolio of 11,173 contracts amounting to EUR 889.255 million (incl. EUR15.73 million collected between 30 November 2017 and of 17 January 2018). The top industry sector in the pool, in terms of Moody's industry classification, is Construction and Building (36%). The top borrower represents 1.9% of the portfolio and the effective number of obligors is 691. The assets were originated mainly between 2009 and 2017 and have a weighted average seasoning of 4.23 years and a weighted average remaining term of 9.61 years. The interest rate is floating for 87.3% of the pool, while the remaining part of the pool bears a fixed interest rate. The weighted average spread on the floating portion is 3.06%, while the weighted average interest on the fixed portion is 4.77%. Geographically, the pool is concentrated mostly in South of Italy (73.63%) and Central Italy (22.35%). Any loan in arrears has been excluded from the pool. Around 47.6% of the portfolio is secured by mortgage guarantees over different types of properties.

Key transaction structure features:

Reserve fund: The transaction benefits from EUR 12,543,534.00 reserve fund initially funded in March 2017, equivalent to roughly 2.5% of the balance of the Class A1 and A2 notes and will be reduced to zero after Class A notes are fully redeemed. The reserve fund provides mainly liquidity protection to the Class A1 and A2 notes.

Counterparty risk analysis:

Banca Popolare di Bari (not rated) will act as servicer of the loans for the Issuer, while Zenith Service S.p.A. (not rated) acts as back-up servicer and Securitisation Services S.p.A. (not rated) acts as Representative of Noteholders.

All of the payments under the assets in the securitised pool are paid into the collection account at Banca Popolare di Bari (not rated). There is a daily sweep of the funds held in the servicer collection account into the issuer collection account. The Issuer account is held at BNP Paribas Securities Services (Long Term Deposit Rating: Aa3/ Short Term Deposit Rating: P-1), acting from its Milan branch. There is 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.

Parameter Sensitivities analysis:

Moody's also tested other set of assumptions under its Parameter Sensitivities analysis. For instance, if the assumed default rate of 19% used in determining the initial rating was changed to 23% and the recovery rate of 40% was changed to 30%, the model-indicated rating for Class A1, Class A2 and Class B of Aa2 (sf), Aa2 (sf) and Baa2 (sf) would be Aa3 (sf) for A1, A2 (sf) for A2 and Ba1 (sf) respectively. For more details, please refer to the full Parameter Sensitivity analysis included in the New Issuer 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 an 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 the 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 Class A notes by the legal final maturity and for ultimate payment of principal with respect to the Class B 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 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.

Monica Curti
VP - Senior Credit Officer
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

Carole Gintz
Associate Managing Director
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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