November 13, 2012 / 7:31 PM / 5 years ago

TEXT-Fitch affirms Vela Mortgages transactions

Nov 13 - Fitch Ratings has affirmed Vela Mortgages S.r.l. - Series 1 (VM1)
and Vela Mortgages S.r.l. - Series 2 (VM2), as follows:

Vela Mortgages S.r.l. - Series 1:

Class A (ISIN IT0004364185): affirmed at 'AAAsf'; Outlook Negative

Class B (ISIN IT0004364193): affirmed at 'AAsf'; Outlook Negative

Class C (ISIN IT0004364201): affirmed at 'BBB-sf'; Outlook Negative

Vela Mortgages S.r.l.  - Series 2:

Class A (ISIN IT0004550429): affirmed at 'AAAsf'; Outlook Negative

Class B (ISIN IT0004550593): affirmed at 'AAsf'; Outlook Stable

Class C (ISIN IT0004550452): affirmed at 'BBB+sf'; Outlook Stable

The affirmations reflect the stable performance of the underlying assets and 
Fitch's view of the credit support available to the notes, which is expected to 
remain sufficient to withstand the respective rating stresses. The Outlook on 
the most senior notes reflects the Outlook on Italy's Long-Term Issuer Default 
Rating ('A-'/Negative/'F2').

The two transactions comprise residential mortgage loans originated and serviced
by Banca Nazionale del Lavoro S.p.A. ('A'/'F1'/Negative). The pools include 
semi-annual paying loans, as well as fixed-instalment loans which feature either
variable maturity and/or a step-up in the fixed amount ("Mutuo Affitto" and 
"Mutuo Affitto Piu'"). The exposure to these loans varies across the two 
transactions, with semi-annual loans making up 22.7% of VM1 and 4% of VM2, while
fixed-instalment loans stood at 49.5% and 6.9% for VM1 and VM2, respectively, in
October 2012. As such loans are deemed more risky, Fitch applied more 
conservative default probability assumptions in its analysis of these pools. 

Both transactions feature a principal deficiency ledger (PDL) mechanism whereby 
any defaulted loan, as well as any principal instalment unpaid under any 
delinquent loan are recorded and cleared using available excess revenue. 

The performance of both portfolios has stabilised over the past year. The 
stabilisation in arrears levels for VM1 was driven by the high percentage of 
variable rate loans in the pool (around 60%), with the underlying borrowers 
benefiting from the current low interest environment, which has improved 
borrower affordability. VM2 has historically outperformed the more seasoned 
transaction. In Fitch's view, the better performance of VM2 has been driven by 
the lower exposure to semi-annual and fixed instalment loans.  

In Fitch's opinion, an additional reason for the stabilised performances are the
originator buy-backs of underperforming loans, which were aimed at improving the
quality of the underlying assets (approximately 9.5% of the initial pool balance
in VM1 versus 16.5% in VM2). These factors have led to a lower volume of loans 
being cleared through the PDLs of the two transactions. As a result, VM1 managed
to top-up its reserve fund to EUR90m as of the October 2012 payment date from 
EUR81m a year ago. The reserve fund is presently at 80% of the EUR112.7m target 
amount. In Fitch's view, the further replenishment of the reserve fund will 
depend on borrowers' ability to meet their payments as well as the future inflow
of recoveries on defaulted loans. Given the high dependency of excess revenue on
recoveries and the uncertainty over the timing of their receipts, the Outlooks 
on VM1's mezzanine and junior tranches remain Negative. 

VM2's reserve fund is at 96% of its target amount (EUR53.5m). The draw was 
driven by a higher volume of defaulted loans, which were cleared through the 
PDL. Fitch believes that future draws will remain limited, and not have a major 
impact on the credit enhancement of the rated notes. As a result the agency 
believes that the current level of credit support available to the notes remains
sufficient to withstand the respective rating stresses, leading to an 
affirmation of the notes with Stable Outlooks. 

Loans in arrears by more than three months stood at 1.3% and 1.4% of the current
collateral portfolios as of the October 2012 IPD for VM1 and VM2, respectively. 
Although the last two collection periods have shown a slight upward trend, 
especially in the late stage of arrears (greater than 12 months), Fitch does not
expect these arrears to translate into a sudden deterioration in asset 
performance, as reflected in the affirmations. As the performance of VM1's pool 
has historically been worse, Fitch remains more cautious about future 
performance, which is reflected in the Negative Outlooks on the class B and C 
notes.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below