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Rating Action:

Moody's assigns definitive ratings to Italian RMBS Notes issued by 2018 Popolare Bari RMBS S.r.l.

14 Jun 2018

London, 14 June 2018 -- Moody's Investors Service ("Moody's") has today assigned definitive long-term credit ratings to the Notes issued by 2018 Popolare Bari RMBS S.r.l.:

....EUR 684,237,000 Class A Residential Mortgage Backed Floating Rate Notes due April 2059, Definitive Rating Assigned Aa2 (sf)

....EUR 48,299,000 Class B Residential Mortgage Backed Floating Rate Notes due April 2059, Definitive Rating Assigned A3 (sf)

Moody's has not assigned ratings to the EUR 77,534,000 Class J1 Residential Mortgage Backed Floating Rate and Additional Return Notes due April 2059 and to the EUR 16,911,000 Class J2 Residential Mortgage Backed Floating Rate and Additional Return Notes due April 2059.

The transaction represents the eleventh securitization transaction rated by Moody's with loans originated by Banca Popolare di Bari Group. In particular, the originators for the subject transaction are Banca Popolare di Bari S.C.P.A. ("BPB", not rated), its subsidiary Cassa di Risparmio di Orvieto S.p.A. ("CRO", not rated) or other entities subsequently taken over by them. The assets supporting the Notes, which amount to around EUR 803,14 million, consist of prime mortgage loans extended to individuals with a first economic lien on properties located in Italy.

Each bank will service its own portfolio, with BPB assuming the role of master servicer at closing and Zenith Service S.p.A. ("Zenith", not rated) acting as Back-Up Servicer. In addition, 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.

RATINGS RATIONALE

The ratings take 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 3.7% and the MILAN CE of 14% 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 3.7%, which is in line with the Italian RMBS sector average, take into account: (i) 10 years of vintage data from BPB's book, based on loans with similar characteristics as the ones in the securitized pool; (ii) 10 years of dynamic delinquency data from the originators' books which shows that the 90+ delinquency rate has increased consistently from 1.35%-2.3% in December 2010 to 2.46%-7.9% in December 2017; (iii) 10 years of vintage data from the BPB's book showing an average recovery rate on closed files around 88% (7 years after default) and recovery rates on open files from the originators' books ranging between 15%-45%; (iv) the limited historical data and performance data on defaults received from CRO; (v) the performance of the previous RMBS transactions launched by the originators; (vi) the stable outlook that Moody's has on Italian RMBS; and (vii) comparing with similar Italian RMBS transactions.

The key drivers for the MILAN CE of 14%, which is similar to the Italian RMBS sector average, take into account: (i) the low weighted average (WA) loan-to-value (LTV) at around 48.23%; (ii) the fact that 38.02% of the pool is concentrated in the region of Puglia and 71.32% of the loans are backed by properties located in the South of Italy; (iii) self-employed borrowers and loans with unspecified purpose accounting for 10.80% and 10.92% of the portfolio, respectively; (iv) missing occupancy type data for the entire pool (although the originators provided a representation stating that approx. 80% of the pool comprises first home loans); (v) relatively well-seasoned portfolio of approximately 5.23 years; and (vi) comparing with other Italian RMBS transactions.

Transaction structure: The transaction benefits from an amortising Liquidity Reserve sized at 3% of the initial balance of the rated Notes and fully funded at closing through a portion of the proceeds of the issue of the Class J Notes. The Liquidity Reserve is replenished in the waterfall immediately after the payment of interest on the Class A Notes, therefore mainly acting as a source of liquidity for the Class A Notes. However, it can provide credit support to the Class A Notes at the legal final maturity date and, in addition, the amounts that are released when it amortises can also be used as credit support for the Class A Notes. The Liquidity Reserve amortises to 3% of the outstanding balance of the rated Notes, subject to the floor of 1% of the initial balance of the rated Notes. The Liquidity Reserve will be reduced to zero after the Class A Notes are fully redeemed. The transaction also benefits from principal to pay interest mechanism for the rated Notes.

Operational risk analysis: BPB acts as servicer of its own portfolio and master servicer. In order to mitigate the operational risk, Zenith has been appointed as Back-Up Servicer at closing and will step in as servicer and master servicer should the appointment of BPB and/or CRO (as the case may be) be terminated.

Interest Rate Risk Analysis: The portfolio comprises pure floating rate loans (64.65%), floating rate loans with a cap (4.18%) and fixed rate loans (31.17%), whereas the rated Notes pay 3-month Euribor plus a spread. In order to hedge the fixed-floating rate risk and the basis risk stemming from both the floating rate loans with cap and the pure floating rate loans, the Issuer entered into six swaps with J.P. Morgan AG (A1 LT Issuer Rating/P-1, Aa2(cr)/P-1(cr)) acting as swap counterparty: two fixed-floating interest rate swaps, two capped basis swaps and two basis swaps. The collateral trigger has been set at loss of A2(cr) and P-1(cr) and the transfer trigger at loss of Baa2(cr) and P-2(cr) and Moody's has considered the resulting linkage in its analysis. Moody's has also 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 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 date 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 date with respect to the Class A and Class B Notes. 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 3.7% to 5.55% of the current portfolio balance and the MILAN CE remained at 14%, the model output indicates that the Class A would still achieve Aa2 (sf) and the Class B would achieve Baa1 (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 these ratings 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 ratings for RMBS securities 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 and/or a downgrade of the Italian Local Currency Country Risk Ceiling 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.

Elisa Scalco
AVP - 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

Barbara Rismondo
Senior Vice President/Manager
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

No Related Data.
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