Fitch Affirms 7 Tranches and Upgrades 2 of Apulia Series

LONDON--(BUSINESS WIRE)-- Fitch Ratings has taken rating actions on Apulia series, three RMBS transactions originated by Banca Apulia (now part of Veneto Banca (not rated)).

The full list of rating actions 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) upgraded to 'A-sf' from '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) ) upgraded to 'A-sf' from 'BBBsf'; Outlook Stable.

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 Stable.

KEY RATING DRIVERS

Sufficient Credit Enhancement

The three transactions benefit from strong credit protection, which is sufficient to withstand current rating stresses, as reflected in the affirmation of most of the tranches. Fitch considers the credit enhancement available to the junior notes in Apulia 2 and 3 to be in line with a rating category upgrade.

Asset Performance within Expectations

In the last 12 months, late stage arrears (defined as mortgages with at least three monthly instalments overdue) increased across all the transactions, currently ranging between 1.4% (Apulia 2) and 1.8% (Apulia 3) of the current collateral balance, in line with the 1.5% reported in the Italian RMBS Index. Fitch observes that the volatility in the dynamic of late stage delinquencies reflects also the small size of the remaining underlying pools. Gross cumulative defaults (mortgages with more than seven monthly payments overdue) range between 5.7% (Apulia 2) and 7.9% (Apulia 3) of the original portfolio balance, higher than the Italian average (4.3%), which reflects the rather conservative default definition.

In Fitch's view, the low weighted average current loan-to-value ratios, between 29.8% (Apulia 2) and 38.4.9% (Apulia 2), and the high seasoning of the transactions, between 106 (Apulia 4) and 144.8 months (Apulia 2), will contribute positively to their future performance. Nevertheless, Fitch believes that the main risk factors, which could cause a deterioration in the asset performance, are represented by the geographic concentration in the South, which suffers of more prominent economic downturn compared to the rest of Italy, by broker originated loans (particularly in Apulia 3, where such loans represent 47% of the collateral balance in arrears) and by mortgages granted to SMEs in Apulia 3 and 4, respectively 4.1% and 6.2% of the current collateral. Fitch has applied more conservative default assumption for these mortgages, in the light of the weak economic environment in Italy.

Reserves Below Target

None of the transactions have their cash reserve at target level. However, In Apulia 2 and 4 reserves have replenished over the last 12 months and now are at 82.3% and 84.3% of their target respectively. Over the same period, Apulia 3 cash reserve has been drawn and now stands at 75.8% of its required level. Since the cash reserves are not at the target, they cannot amortise along with the collateral balance to the floor level. As a result, the reserves now provide more credit support than would be the case otherwise.

Payment Interruption Risk Mitigated

Fitch tested the ability of the transactions to withstand 6 months of payment interruption, assuming stressed interest rates and senior fees. Fitch found the transactions have sufficient liquidity to mitigate this risk.

RATING SENSITIVITIES

Changes to Italy's Long-term Issuer Default Rating ('BBB+'/Stable Outlook) and the rating cap for Italian structured finance transactions, currently 'AA+sf', could trigger rating changes on the notes.

Additional information is available at www.fitchratings.com.

Fitch's analysis of Representations, Warranties & Enforcement Mechanisms can be found in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated 26 March 2015 at www.fitchratings.com. Individual Representations, Warranties and Enforcement Mechanism reports are available for all structured finance transactions initially rated on or after 26 September 2011 at www.fitchratings.com.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis:

--Loan-by-loan data provided by Veneto Banca, dated December 2014 for Apulia 2 / Apulia 4 and February 2015 for Apulia 3.

--Transaction reporting provided by Veneto Banca as of December 2014.

Applicable criteria, 'EMEA RMBS Master Rating Criteria', dated 31 March 2015; 'EMEA Residential Mortgage Loss Criteria', dated 31 March 2015; 'EMEA RMBS Cash Flow Analysis Criteria' dated 31 March 2015, 'Criteria Addendum: Italy - Mortgage Loss and Cash Flow Assumptions', dated 5 June 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds' and 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 14 May 2014; 'Global Structured Finance Rating Criteria', dated 31 March 2015; 'Criteria for Sovereign Risk in Developed Markets for Structured Finance and Covered Bonds', dated 20 February 2015 are available at www.fitchratings.com.

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983699

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Lead Surveillance Analyst
Francesco Lanni
Associate Director
+44 20 3530 1685
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Committee Chairperson
Lara Patrignani
Senior Director
+44 20 3530 1052
or
Media Relations:
Athos Larkou, +44 203 530 1549, London
[email protected]

Source: Fitch Ratings

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