Fitch Affirms Voba Series; Outlook Stable
Class A2 (ISIN IT0004153216) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0004153224) affirmed at 'AA+sf'; Outlook Stable
Class C (ISIN IT0004153257) affirmed at 'AA+sf'; Outlook Stable
Class A1 (ISIN IT0005009953) affirmed at 'AA+sf'; Outlook Stable
Class A2 (ISIN IT0005009961) affirmed at 'AA+sf'; Outlook Stable
The two prime Italian RMBS transactions are backed by loans originated and serviced by Banca Popolare dell'Alto Adige.
KEY RATING DRIVERS
Strong Credit Enhancement (CE)
In both transactions, steady repayment rates (15.5% and 19.2%, respectively) support a consistent build-up of CE. In addition, all the available excess spread and the funds released from the amortising cash reserves have been used to repay principal on the senior notes, accelerating their redemption and resulting in the notes' over-collateralisation (EUR62m and EUR6.5m, respectively).
The agency believes that the current CE of between 98.8% (Class A2, Voba Finance) and 27.6% (Class A, Voba 5), is sufficient for the 'AA+sf' ratings and Stable Outlooks.
Asset Performance within Expectations
As of December 2015, the balance of loans in arrears for at least three months was 1.5% of the current portfolio in Voba Finance (-70bps year-on-year) and 0.7% in Voba 5 (+40bps year-on-year). Fitch's Italy All Deals Index reported late arrears at 1.6%.
In Voba Finance, cumulative defaults (loans with payments in arrear for more than 18 months) were 2.3% of the original portfolio balance in December 2015, below the market average (4.5%). For Voba 5 they remain negligible (8bps), due to the deal's vintage (April 2014).
Fitch expects a further rise in Voba 5's late arrears, given the current pipeline of earlier stage arrears and since the pool comprises a high proportion of self-employed borrowers (35%), which have proven to be particularly affected by the economic cycle. Recognising the additional risk represented by self-employed borrowers, the agency applied a 50% increase to their base foreclosure frequency. Despite the higher expected loss resulting from this, the available CE was sufficient to affirm the ratings.
Changes to Italy's Long-term Issuer Default Rating (BBB+/Stable) and the rating cap for Italian structured finance transactions, currently 'AA+sf', could trigger rating changes to the 'AA+sf' rated tranches in the series.
A sudden increase in the reference interest rates, above Fitch's stresses, would put pressure on borrower affordability, particularly on loans originated in a low interest rate environment and without structural protection (for example, caps). These loans account for 67.1% for the current pool in Voba 5.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
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 pool ahead of the Voba Finance initial closing. The subsequent performance of the transaction 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.
Prior to Voba 5 closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated errors or missing data. They were subsequently corrected in the final portfolio and did not require any assumption to be made by the agency.
Fitch conducted a review of a small targeted sample of Banca Popolare dell'Alto Adige's origination files and found missing data related to loan purpose, employment type and residence type. The lack of data on a portion of the portfolio was addressed assigning the upper-bound default hits to those loans where the information was not provided. While loan purpose and employment type were available for the current analysis, the residence type was not included in the loan-by-load data file. Therefore, aggregate figures related to the residence type were taken from the investor report. Additional foreclosure frequency adjustments applied in the initial analysis are no longer relevant in this review.
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 Banca Popolare dell'Alto Adige as at 30 November 2015
- Transaction reporting provided by Banca Popolare dell'Alto Adige as at 30 November 2015
REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial new issue report (see Voba n.5 S.r.l. - Appendix, dated 24 April 2014 at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.