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Rating Action:

Moody's upgrades and affirms ratings in three Italian ABS transactions

01 Jul 2015

London, 01 July 2015 -- Moody's Investors Service has today upgraded the ratings on three notes and affirmed the ratings on two notes in three Italian asset-backed securities (ABS) transactions, including (1) two small and medium-sized enterprise deals, BPM SECURITISATION 3 S.r.l. (BPM) and BPL Mortgages S.r.l. (2014 SME) (BPL); and (2) one transaction backed by small-ticket leases, Tricolore 2014 SPV S.r.l. (Tricolore).

The rating action follows the assignment of a Ba2(cr) Counterparty Risk Assessment (CR Assessment) to both Banco Popolare Societa Cooperativa and Banca Popolare di Milano S.C.a r.l. on 27 May 2015 and 22 June 2015, respectively.

Please refer to the end of the Ratings Rationale section for a list of affected ratings.

RATINGS RATIONALE

The main drivers behind today's upgrades are (1) the introduction of the CR Assessment to Banco Popolare Societa Cooperativa and Banca Popolare di Milano S.C.a r.l.; (2) Moody's newly introduced 45% recovery rate assumption on counterparty exposure in respect of both the commingling risk and the set-off risk; and (3) deleveraging since the previous rating actions.

Moody's analysis takes into account the collateral performance to date as well as the exposure to relevant counterparty servicers and account banks. Moody's performed model sensitivity tests to key collateral assumptions for all three transactions (default probability and volatility). Operational risk acted as a rating constraint in BPL and Tricolore transactions.

--- INTRODUCTION OF THE COUNTERPARTY RISK ASSESSMENT

Moody's introduced the CR Assessment for banks as part of its revised bank rating methodology. The CR Assessment reflects an issuer's ability to avoid defaulting on certain obligations and contractual commitments, including payment obligations associated with derivatives, letters of credit, third-party guarantees, servicing and trustee obligations and other operational obligations. A CR Assessment of Ba2 (cr) for Banco Popolare Societa Cooperativa and Banca Popolare di Milano S.C.a r.l. was used for the exposure to the servicers in BPL and BPM respectively. Banca Privata Leasing SPA, the originator and servicer of Tricolore is unrated. As per Moody's methodology ("Cash Commingling Risk in EMEA ABS and RMBS Transactions: Moody's Approach"), Moody's now use Banca Popolare di Milano S.C.a r.l. and Banco Popolare Societa Cooperativa's CR Assessment at Ba2(cr), rather than its senior unsecured debt rating of Ba3, to measure the probability of a commingling risk event. In the case of Tricolore, whose parent Banca Privata Leasing SPA is unrated, this risk was modelled with a Caa2 rating.

--- KEY COLLATERAL ASSUMPTIONS AND CREDIT ENHANCEMENT LEVELS

Moody's did not amend its current default probabilities (DP) and portfolio credit enhancement (PCE) levels for these deals, as these are consistent with actual pool characteristics and performances.

Given that the granularity of the pools is comparable to that observed for peer SME and leasing transactions, Moody's updated its modelling assuming an inverse normal distribution. Moody's also switched to fixed recovery assumptions of 49%, 50% and 45% for BPL, BPM and Tricolore respectively instead of the equivalent stochastic recovery rates of 54%, 55% and 50% respectively.

For Tricolore, the credit enhancement (CE) under the Class A and Class B Notes has increased since closing to 49.54% from 44.83% and to 37.43% from 33.59%, respectively. The DP and the PCE were left unchanged at 24.3% (on current pool balance) and 24.0% respectively, resulting in a 26.3% Coefficient of Variation (CoV).

For BPM, the CE under the Class A Notes has increased since closing to 46.38% from 35.12%. The DP and the PCE were left unchanged at 15.90% (on current pool balance) and 22.00% respectively, resulting in a 46.25% CoV.

For BPL, the CE under the Class A-2014 and Class B-2014 Notes has increased since closing to 61.91% from 44.39% and to 40.73% from 29.37%, respectively. The DP and the PCE were left unchanged at 17.60% (on current pool balance) and 25.71% respectively, resulting in a 49.74% CoV.

--- EXPOSURE TO COUNTERPARTIES

Moody's considered the notes' exposure to relevant counterparties, such as the servicer or account banks. When analysing commingling risk, Moody's now matches banks' exposure in structured finance transactions to the CR Assessment, and to the bank deposit rating when analysing set-off risk. Moody's has introduced a recovery rate assumption of 45% for both counterparties exposures.

The operational risk features of BPL and Tricolore limited the upgrade potential in these deals. In BPL, the reserve fund, which provides liquidity during the life of the deal, is deposited on a Banco Popolare Societa Cooperativa (Ba3/NP) account and is therefore vulnerable to a potential default of Banco Popolare Societa Cooperativa. In Tricolore, the reserve fund only represents 1.1% of the amount of the notes and may be insufficient to provide liquidity in a stress scenario.

Moreover, in the case of Tricolore, Moody's assumed that the recovery rate would go down to 15% upon Banca Privata Leasing SPA's default. Legal uncertainty regarding the rights of the special purpose vehicles to recover amounts on the lease contracts upon originator's default drives this assumption. This feature, along with the very limited amount of liquidity available, limited the upgrade potential for Class A and B of Tricolore.

--- RATING SENSITIVITY

To ensure rating stability and to test the sensitivity of the notes ratings, Moody's ran stressed scenarios in cash flow models before upgrading ratings on the relevant notes.

The stressed scenarios assume (1) stresses for the default probability assumption of up to 25% and (2) increases in the portfolio CE assumption of up to 20%. Nevertheless, operational risk constraints, rather than sensitivity analysis, constrained the upgrades in BPL and Tricolore.

The principal methodology used in rating BPM SECURITISATION 3 S.r.l. and BPL Mortgages S.r.l. (2014 SME) was Moody's Global Approach to Rating SME Balance Sheet Securitizations published in January 2015. The principal methodology used in rating Tricolore 2014 SPV S.r.l. was Moody's Approach to Rating ABS Backed by Equipment Leases and Loans published in January 2015. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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

Factors or circumstances that could lead to an upgrade of the ratings are (1) a lower probability of high-loss scenarios as a result of an upgrade of the country ceiling, (2) performance of the underlying collateral that exceeds Moody's expectations, (3) deleveraging of the capital structure and (4) improvements in the credit quality of the transaction counterparties.

Factors or circumstances that could lead to a downgrade of the ratings are (1) an increased probability of high-loss scenarios as a result of a downgrade of the country ceiling, (2) performance of the underlying collateral that does not meet Moody's expectations, (3) deterioration in the notes' available CE and (4) deterioration in the credit quality of the transaction counterparties.

LIST OF AFFECTED RATINGS:

Issuer: BPL Mortgages S.r.l. (2014 SME)

....EUR1077.4M A-2014 Notes, Affirmed A1 (sf); previously on Jan 23, 2015 Upgraded to A1 (sf)

....EUR269.3M B-2014 Notes, Upgraded to A1 (sf); previously on Mar 20, 2015 A3 (sf) Placed Under Review for Possible Upgrade

Issuer: BPM SECURITISATION 3 S.r.l.

....EUR573M A Notes, Upgraded to Aa2 (sf); previously on Mar 20, 2015 A1 (sf) Placed Under Review for Possible Upgrade

Issuer: Tricolore 2014 SPV S.r.l.

....EUR100M A Notes, Affirmed A1 (sf); previously on Jan 23, 2015 Upgraded to A1 (sf)

....EUR20M B Notes, Upgraded to A3 (sf); previously on Mar 20, 2015 Baa2 (sf) Placed Under Review for Possible Upgrade

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Anne-Sophie Spirito
Asst Vice President - Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Mehdi Ababou
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Ludovic Thebault
Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades and affirms ratings in three Italian ABS transactions
No Related Data.
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