The transaction securitizes a pool of mortgage and non-mortgage loans that
BPER granted to small and midsize enterprises (SMEs) in Italy.
The seller and originator is Banca Popolare dell'Emilia Romagna (BPER), one of
the largest cooperative banks in Italy. This is the first SME-backed
transaction originated by BPER.
The issuer is a special-purpose entity (SPE), incorporated as a
limited-liability company in Italy under article 3 of Law 130. The issuance of
the class A and B euro-denominated notes funds the issuer's purchase of the
portfolio of securitized loans.
Our 'A- (sf)' rating on the class A notes reflects our assessment of the
credit and cash flow characteristics of the underlying asset pool, as well as
our analysis of the counterparty and operational risks of the transaction. Our
analysis indicates that the credit enhancement available to the class A notes
is sufficient to mitigate the credit and cash flow risks to a 'A- (sf)' rating
Our ratings reflect our assessment of the following factors:
Operational and servicing risk.
BPER has an in-depth knowledge of the local market in which it operates (in
the Emilia Romagna region of Italy), where about 78% of the securitized
portfolio is located. Emilia Romagna is one of the Northern wealthier Italian
regions. Our rating on the class A notes reflects our assessment of the
company's origination policies and our evaluation of its ability to fulfil its
role as servicer under the transaction documents, among other factors. The
transaction didn't have a back-up servicer at closing. However, we believe
that the availability of potential back-up servicers in the Italian market for
this asset class mitigates the risk posed by a servicing discontinuity.
Additionally, our cash flow model incorporated a stressed servicing fee that
we deemed to be sufficient to provide an economic incentive for a new servicer
to step in. There are also mechanisms in place to ensure that borrowers'
payments are diverted on time to the SPE's eligible accounts, if the servicer
The collateral is a static pool of non-mortgage and mortgage loans to Italian
SME borrowers. We have analyzed credit risk by applying our SME criteria (see
"Methodology And Assumptions: Update To The Criteria For Rating European SME
Securitizations," published on Jan. 6, 2009).
Our projected weighted-average gross default assumption is 28.8% under a 'A-'
rating scenario, with a 11.9% base case. Our assumed recovery rate is 28.5%
under a 'A-' rating scenario. We based our assumptions on the originator's
data, the portfolio's characteristics (such as the geographic concentration),
and the macroeconomic outlook for Italy (see "The Eurozone's New
Recession--Confirmed," Sept. 25, 2012).
Cash flow risk.
Our rating on the class A notes reflects our assessment of the transaction's
credit and cash flow characteristics. We tested the transaction's cash flows
in a model that simulated the rating stress scenarios. In our modeling
approach, we run several different scenarios at each rating level, combining
different interest rate patterns with different prepayment rates.
Additionally, we have decreased the margin received under the portfolio to
account for the basis risk related to the lack of hedging in this transaction,
or to account for the possibility of the portfolio experiencing a reduction in
yield--linked to the fact that higher-yielding loans may have a higher
propensity to default or to prepay. Our analysis indicates that the level of
credit enhancement available to the rated notes is sufficient to withstand the
credit and cash flow stresses that we apply at a 'A-' rating level for the
class A notes, so that the rated notes received timely interest and ultimate
principal payments by final maturity.
Our rating on the class A notes also reflects the fact that the transaction's
exposure to counterparty risk is
adequately mitigated through the replacement/remedy mechanisms in the
We have analyzed counterparty risk by applying our 2012 counterparty criteria
(see "Counterparty Risk Framework Methodology And Assumptions," published on
Nov. 29, 2012). The minimum rating required for the transaction account
provider under the transaction documents is 'BBB-', which therefore supports a
maximum potential 'A- (sf)'rating on the notes. Since the transaction's
exposure to counterparty risk is considered to be "limited" under our 2012
counterparty criteria, the maximum potential rating on the supported security
(in this case, the class A notes) is 'A- (sf)'.
The issuer is an SPE established to issue securitization notes. This is the
first issuance made out of this SPE--further securitizations are allowed under
the transaction documents, but are subject to rating agency confirmation. We
consider the issuer to be in line with our European legal criteria for
bankruptcy-remoteness (see "European Legal Criteria For Structured Finance
Transactions," published on Aug. 28, 2008).
The application of our nonsovereign ratings criteria permit a maximum rating
differential of up to six notches between our ratings in this transaction and
the related EMU sovereign (in this case, Italy [unsolicited;
BBB+/Negative/A-2]). Our nonsovereign ratings criteria therefore cap at 'AA+
(sf)' the maximum potential ratings in the transaction (see "Nonsovereign
Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions,"
published on June 14, 2011).
POTENTIAL EFFECTS OF PROPOSED CRITERIA CHANGES
We have taken today's rating actions based on our criteria for small and
midsize enterprises (SMEs) (see "Related Criteria And Research"). However,
these criteria are under review (see "Request For Comment: European SME CLO
Methodology And Assumptions," published on Jan. 17, 2012).
As a result of this review, our future European SME criteria may differ from
our current criteria. The criteria change may affect the ratings on all
outstanding notes in this transaction. Until such time that we adopt new
criteria, we will continue to rate and surveil these transactions using our
existing criteria (see "Related Criteria And Research").
RELATED CRITERIA AND RESEARCH
-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012
-- Global Investment Criteria For Temporary Investments In Transaction
Accounts, May 31, 2012
-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology
And Assumptions, June 14, 2011
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Update To Global Methodologies And Assumptions For Corporate Cash Flow
And Synthetic CDOs, Sept. 17, 2009
-- Methodology And Assumptions: Update To The Criteria For Rating
European SME Securitizations, Jan. 6, 2009
-- European Legal Criteria For Structured Finance Transactions, Aug. 28,
-- Criteria Update: Rating Leasing Securitizations In Italy, May 3, 2006
-- European Consumer Finance Criteria, March 10, 2000
-- The Eurozone's New Recession--Confirmed, Sept. 25, 2012
-- How Standard & Poor's Applies its Criteria To Bank Branches In The EU
And Eurozone, July 27, 2012
-- Request For Comment: European SME CLO Methodology And Assumptions,
Jan. 17, 2012
-- Italy's Unsolicited Ratings Lowered To 'BBB+/A-2'; Outlook Negative,
Jan. 13, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The
Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Global Structured Finance Scenario And Sensitivity Analysis: The
Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- Banca Popolare dell'Emilia Romagna S.C., June 1 2012
Class Rating Amount
ESTENSE S.M.E. S.R.L.
EUR2,157 Million Asset-Backed Floating-Rate Notes
A A- (sf) 1,488
B NR 668.7