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Mercurio Mortgage Finance's Series 2003-2 Rating Raised On One Class Following Criteria Revision; Three Affirmed


  • We have reviewed Mercurio Mortgage Finance's series 2003-2 by conducting our credit and cash flow under our global RMBS criteria.
  • Following this review, we raised our rating on the class D notes. At the same time, we affirmed our 'A (sf)' ratings on the class A, B, and C notes.
  • Mercurio Mortgage Finance's series 2003-2 is a securitization of Italian mortgage loans that closed in June 2003. Barclays Bank Ireland PLC, Milan Branch originated the loans.

MILAN (S&P Global Ratings) May 5, 2021--S&P Global Ratings today raised to 'A (sf)' from 'A- (sf)' its credit rating on Mercurio Mortgage Finance S.r.l.'s series 2003-2's class D notes. At the same time, we affirmed our 'A (sf)' ratings on class A, B, and C notes.

Today's rating actions follow our full analysis of the most recent information that we have received, the transaction's current structural features, and the credit enhancement available for the notes. We conducted our credit and cash flow analysis using our revised criteria and assumptions for assessing pools of Italian residential loans (see "Related Criteria").

Our operational, sovereign risk, counterparty, and legal risk analyses remain unchanged since our last review. The application of our counterparty criteria continues to cap our ratings in this transaction at 'A (sf)', while the cap for sovereign risk is 'AA (sf)'. There is no cap for operational and legal risk.

Loans in arrears made up 3.24% of the portfolio in March 2021, if we exclude delinquent receivables with more than six unpaid installments (75% of which are covered by excess spread in the interest waterfall through the principal deficiency ledger). After an increase in arrears in June 2020 mainly due to delays in granting payment holidays, arrears are back to previous levels and are stable. The pool factor is below 10%.

Our weighted-average foreclosure frequency (WAFF) assumptions have decreased since our last full review in 2017, mainly due to the implementation of the effective loan-to-value (ELTV) ratio in our revised criteria, which is weighted by 80% of the original LTV (OLTV) and 20% of the indexed current LTV (CLTV). Under our previous criteria, only the OLTV was considered. While the OLTV is 70.85%, the ELTV is significantly lower at 62.11%, which results in a lower WAFF (see "Related Criteria"). Our weighted-average loss severity (WALS) assumptions have remained unchanged at 2%, which is the pool-level floor under our criteria.

Table 1

Credit Analysis Results
Rating WAFF (%) WALS (%) Credit coverage (%)
AAA 9.99 2.00 0.20
AA 7.67 2.00 0.15
A 6.51 2.00 0.13
BBB 5.35 2.00 0.11
BB 4.20 2.00 0.08
B 3.91 2.00 0.08
WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity.

Our analysis considers the transaction's sensitivity to the potential repercussions of the coronavirus outbreak. We tested the sensitivity of extended recovery timing assumptions by six months considering the temporary stop in foreclosures. We also ran a sensitivity analysis assuming higher defaults and checked that the letter of credit and the liquidity facility would be sufficient to cover several years of senior fees and interest payments to the notes.

Although our analysis indicates that the credit enhancement available to the class A, B, C, and D notes is sufficient to mitigate the credit and cash flow risks at the 'AAA (sf)' rating, our counterparty criteria cap our ratings on the notes at 'A (sf)'.

Therefore, we raised to 'A (sf)' from 'A- (sf)' our rating on the class D notes considering the increase in class D's credit enhancement (which is currently around 23%), stable asset performance, and robust cash flow results. At the same time, we affirmed our 'A (sf)' ratings on the class A, B, and C notes.

S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. We use these assumptions about vaccine timing in assessing the economic and credit implications associated with the pandemic (see our research here: As the situation evolves, we will update our assumptions and estimates accordingly.

Related Criteria

Related Research

Primary Credit Analyst:Benedetta Avesani, Milan + 00390272111258;

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