Rating action

Scope Ratings GmbH (Scope) has assigned the following ratings on the issued instruments:

• Class A1 (IT0005614943), EUR 365,700,000 floating rate notes: new rating of AAA_SF
   
• Class A2 (IT0005614950), EUR 186,100,000 floating rate notes: new rating of AAA_SF
   
• Class J (IT0005614968), EUR 113,195,000: not rated

Transaction overview

The transaction is a granular, static securitisation of Italian prime residential mortgage loans originated by Cassa di Risparmio di Asti S.p.A. (CR Asti) and by the former Biver Banca, which is now part of CR Asti. At the cut-off date of 31 August 2024, the underlying portfolio yields 5.0% annually and has an estimated weighted average residual maturity of 18.9 years. 57% of the portfolio pays a fixed rate with the remainder paying a floating rate.

The main structural features are: a) an initial level of credit enhancement via subordination of 17.0% for both class A1 and A2 notes; b) a gross excess spread at closing of 1.0%, measured as the difference between the portfolio’s yield and the weighted average cost of the rated notes; c) a bespoke amortisation mechanism for class A1 and A2 notes, upon which class A2 notes receive 55% of the available funds after senior payments (fast-pay) and class A1 notes receive the remaining 45%, as long as class A2 notes are still outstanding (slow-pay); d) a fixed-floating swap mitigating the risk of having fixed-rate assets against liabilities linked to 3 month Euribor; and e) a reserve fund of EUR 11.0m that covers any shortfalls in interest payments on the class A1 and A2 notes as well as any senior item, ensuring a liquidity coverage of approximately 4 months considering the current Euribor spot rate.

The noteholders are exposed to the following key counterparties: Cassa di Risparmio di Asti S.p.A., as servicer and originator of the portfolio, and BNP Paribas, Italian Branch as issuer account bank holder.

Rating rationale

The assigned ratings reflect the Cash Flow Model (CFM) base case results. Counterparty risk is immaterial, relative to the assigned rating levels and none of the Key Rating Drivers are ESG related.

The key rating drivers underlying the rating action are:

• Prudent origination track record (positive): The former Biver Banca and CR Asti’s extensive experience in the origination of residential mortgage products ensures high underwriting standards. Stringent underwriting criteria based on an internal rating system ensure an appropriate assessment of borrowers’ credit risk. The originators´ low risk appetite limits default risk.²
   
• Strong security interest (positive): The portfolio is entirely composed of first-lien residential mortgage loans, with a weighted average LTV of 54%. In addition, only 0.8% of the loans by current balance have an LTV above 80%. The portfolio collateralisation also reflects the originators´ low risk appetite.¹
   
• Regional concentration (negative): The portfolio is very concentrated in a few regions in the North-West of Italy, including 61% within the Piemonte region. Scope’s Distressed Default Rate captures such high concentration.¹
   
• Loans with options and potential renegotiations (negative): The portfolio includes 64% of loans with the option for borrowers to switch interest rate type: approximately 20% of loans have the option to switch to a fixed interest, while about 44% of loans have the option to switch to a variable interest. All mortgages can also be renegotiated, mainly in terms of type of interest (fixed, floating), level of interest (fixed interest or spread) and maturity, up to predefined thresholds. Scope´s portfolio yield compression factor disclosed further below accounts for this optionality.^1,2

The key CFM assumptions underlying the above rating drivers are:

• Portfolio´s lifetime default rate following an inverse Gaussian distribution
   
• Portfolio´s recovery rate following a beta distribution
   
• Portfolio yield compression factor

Details on these assumptions and other CFM Parameters are provided under the section ‘Quantitative analysis’ below. CFM assumptions factor in the historical performance of assets of similar nature to those of the securitised portfolio, (e.g. based on originators’ performance data or peer transaction benchmarks), and may as well consider qualitative judgements based on a variety of factors, such as a) the originator´s credit policies, b) Scope´s macro-economic expectations, and c) the credit committee´s asset class outlook over the transaction´s lifetime.

The key data sources used to derive the key CFM assumptions are:

• Default and recovery vintage data from the originators covering the period 2009 to 2023
   
• Public collateral performance data of peer Italian RMBS transactions

With regards to the vintage analysis, based on extrapolation techniques, Scope observed an average lifetime default rate of 3.8% for the underlying vintages with a coefficient of variation of 70.6%, and an average lifetime recovery rate of 60.0%.

Rating-change drivers

A change to the transaction’s Key CFM Assumptions based on observed performance or new data sources, significant changes to the transaction’s collateral and structural features, and a change in Scope’s credit views regarding the transition’s Key Rating Drivers could impact the ratings to the downside.

All else equal, the sensitivity analysis below provides an indication of the impact of variations in key CFM assumptions on the CFM quantitative results compared to the assigned ratings. The analysis has the sole purpose of illustrating the sensitivity of the credit ratings to such parameters and is not indicative of expected or likely scenarios.

Class A1 notes

• 50% increase of mean lifetime default rate: 0 notches
   
• 10% decrease of recovery rates: 0 notches
   
• 20 bp increase of the portfolio’s yield compression factor: 0 notches

Class A2 notes

• 50% increase of mean lifetime default rate: 0 notches
   
• 10% decrease of recovery rates: 0 notches
   
• 20 bp increase of the portfolio’s yield compression factor: 0 notches

Quantitative analysis

This section provides a non-exhaustive list of relevant CFM parameters:

• Default rate (DR) distribution parameters: cumulative mean DR assumption of 3.8% and a Distressed Default Rate assumption of 17.6%, implying annualised mean and distressed marginal default rates of 0.4% and 1.8% respectively.
   
• Origination adjustment factor of: -10%.
   
• Recovery rate (RR) distribution parameters: mean RR of 60% and a Distressed Recovery Rate of 36%.
   
• Portfolio yield compression factor of 70bps.
   
• Rating conditional interest rate vectors: as disclosed in Scope´s General Structured Finance Methodology.
   
• Base case constant prepayment rate: 6%.
   
• Senior fees and expenses: 0.3% of the performing mortgage loans balance with a floor of EUR 100,000.

Ratings driver references
1.  Loan-by-loan data tape of the securitised pool and originators’ vintage data (Confidential)
2. Transaction documentation and supporting material (Confidential)

Stress testing
Stress testing was considered in the quantitative analysis by considering scenarios that stress factors, like defaults and recoveries, contributing to sensitivity of Credit Ratings and consider the likelihood of severe collateral losses or impaired cash flows. The impact on the rated instruments is weighted by the assumptions of the likelihood of the events in such scenarios occurring.

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ Cash Flow Model Version 2.0 incorporating relevant asset assumptions and taking into account the transaction’s main structural features, such as the instruments’ priority of payments, the instruments’ size and coupons. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodologies used for these Credit Ratings (Residential Mortgage-Backed Securities Rating Methodology, 17 July 2024; General Structured Finance Rating Methodology, 6 March 2024; Counterparty Risk Methodology, 10 July 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Cash Flow Model Version 2.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings has received a third-party asset due diligence assessment/asset audit. The external due diligence/asset audit assessment was considered when preparing the Credit Ratings and it has no impact on the Credit Ratings.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Rossella Ghidoni, Director
Person responsible for approval of the Credit Ratings: Benoit Vasseur, Managing Director
The Credit Ratings were first released by Scope Ratings on 13 November 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.