RPT-Fitch Affirms Apulia Series
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May 7 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Apulia Series, three prime Italian RMBS backed by mortgage loans granted by bancApulia, now part of the Veneto Banca banking group, and revised the Outlook on two junior tranches to Stable from Negative as follows:
Apulia Finance No. 2 S.r.l. (Apulia 2):
Class A (ISIN IT0003487623) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0003487631) affirmed at 'AA+sf'; Outlook Stable
Class C (ISIN IT0003487649) affirmed at 'BBB+sf'; Outlook Stable
Apulia Mortgage Finance No. 3 S.r.l. (Apulia 3):
Class A (ISIN IT0003742951) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0003742969) affirmed at 'AA+sf'; Outlook Stable
Class C (ISIN IT0003742977) affirmed at 'BBBsf'; Outlook revised to Stable from Negative
Apulia Finance N. 4 S.r.l (Apulia 4):
Class A (ISIN IT0004127574) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0004127582) affirmed at 'AA-sf'; Outlook Stable
Class C (ISIN IT0004127590) affirmed at 'BBBsf'; Outlook revised to Stable from Negative
KEY RATING DRIVERS
Stable Asset Performance
Over the past 12 months, late-stage arrears (mortgages with at least three monthly payments overdue) remained between 0.5% (Apulia 2) and 0.9% (Apulia 3 and 4) of the current pool, while gross cumulative defaults, defined as mortgages with at least seven monthly payments overdue, are reported at between 5.5% (Apulia 2) and 7.2% (Apulia 3) of the initial pool.
Apulia 2 is the best performer of the series, also due to the fully residential nature of the underlying portfolio (i.e. no SME loans).
The high average seasoning, between 142 (Apulia 2) and 102 months (Apulia 4), and the low average current loan-to-value ratio of the underlying mortgages, spanning from 31% (Apulia 2) to 40% (Apulia 4), contribute to the stable performance. As a result, Fitch expects that late stage arrears will remain stable and only a limited number of mortgages will default. This also is the reason behind today's Outlook change to Stable from Negative.
Replenishing Cash Reserves
None of the cash reserves is at its target amount. However, over the last 12 months the respective reserve funds have been replenished and are now between 75% (Apulia 2) and 81% (Apulia 3) of the target balance. This is explained by the stable performance and the available excess spread generated from the swap agreements, especially in Apulia 3 and 4, where it is estimated to be between 0.9% and 1.4% of the current pool.
Payment Interruption Risk Mitigated
Fitch tested the effects of a servicer disruption and concluded that the available reserve funds and, in Apulia 4, the liquidity facility sufficiently mitigate payment interruption risk on the rated notes.
Currently the underlying pools comprise between 6.1% (Apulia 4) and 6.8% (Apulia 3) of mortgages with extended maturities. To account for the potentially higher credit risk of borrowers asking for an extension of the loan term, Fitch made more conservative assumptions about the mortgages and found that the transactions are resilient to the stress.
Stable asset performance and continuous replenishment of the reserve funds, mostly in Apulia 3, could imply positive rating actions on tranches rated below the cap of 'AA+sf' for Italian structured finance transactions.
A sudden deterioration of the pool performance or a more volatile performance of the SME sub-pool, accounting for 4.4% and 6.6% in Apulia 3 and Apulia 4, respectively, may undermine the ratings. Due to less granular features of the SME sub-pools, even few defaults from those portfolios may cause relevant draws on the cash reserves.