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Sestante Finance's Series 4 Class A2 Notes Upgraded; Class B And C Notes Affirmed

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Sestante Finance's Series 4 Class A2 Notes Upgraded; Class B And C Notes Affirmed

Overview

  • We have reviewed Sestante Finance's series 4 notes after expanding the scope of our global RMBS criteria to include Italy, among other countries.
  • We have raised our ratings on the class A2 notes and affirmed our ratings on the class B and C notes.
  • Sestante Finance's series 4 notes were issued in an Italian RMBS transaction that closed in December 2006. The deal securitizes a pool of residential mortgage loans originated by Meliorbanca SpA.

MILAN (S&P Global Ratings) June 15, 2021--S&P Global Ratings today raised to 'BBB- (sf)' from 'BB (sf)' its credit rating on Sestante Finance S.r.l.'s series 4 class A2 notes. At the same time, we affirmed our 'D (sf)' ratings on the class B, C1, and C2 notes.

Today's rating actions follow the implementation of our revised criteria and assumptions for assessing pools of Italian residential loans (see "Related Criteria"). They are based on our analysis of the most recent information that we have received and the transaction's current structural features.

Upon expanding our global RMBS criteria to include Italian transactions, we placed our rating on the class A2 notes under criteria observation. Following our review of the transaction's performance and the application of our updated criteria for rating Italian RMBS transactions, the rating is no longer under criteria observation.

The reserve fund has not been replenished since its depletion in August 2009.

Our analysis considers the transaction's sensitivity to the potential repercussions of the pandemic. We have also run a sensitivity analysis assuming higher defaults and a lower recovery rate.

Based on our updated credit and cash flow analysis, we consider that the available credit enhancement for the class A2 notes is sufficient to support a higher rating than that currently assigned. We have therefore upgraded the class A2 notes to 'BBB- (sf)' from 'BB (sf)'. The 'BBB- (sf) rating is lower than the rating indicated by our cash flow results because it incorporates the transaction's poor performance during its life. The outstanding amount of the principal deficiency ledger stood at €36.5 million as of April 2021 and the reserve fund was fully depleted, indicating the absence of a dedicated liquidity reserve. Cumulative recoveries are also lower than those in other RMBS transactions. In addition, the macroeconomic environment has demonstrated weakness and volatility.

The class C1 and C2 notes breached the interest deferral trigger in October 2013, and the class B notes breached it in October 2016. After these breaches, we lowered to 'D (sf)' our ratings on these classes of notes (see "Related Research"). As interest on the class B, C1, and C2 notes has remained unpaid, we have affirmed our 'D (sf)' ratings on these classes of notes.

Commerzbank AG acts as swap counterparty in this transaction. Under our counterparty criteria, we assessed the collateral framework as weak because the swap documents do not contain downgrade provisions in line with our counterparty criteria. Therefore, our ratings on Sestante Finance's series 4 notes are capped at the resolution counterparty rating on the swap counterparty, which is 'A- (sf)'. Our sovereign risk criteria cap the ratings on this transaction at 'A+ (sf)'.

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: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Sestante Finance's series 4 notes were issued in an Italian RMBS transaction that closed in December 2006. They are backed by a pool of residential mortgage loans originated by Meliorbanca SpA.

Related Criteria

Related Research

  • Italy Ratings Affirmed At 'BBB/A-2'; Outlook Stable, April 23, 2021
  • European RMBS Index Report Q4 2020, April 14, 2021
  • Europe's Housing Market Will Chill In 2021 As Pent-Up Pandemic Demand Eases, Feb. 22, 2021
  • European RMBS Outlook 2021, Jan. 25, 2021
  • S&P Global Ratings Definitions, Jan. 5, 2021
  • Sestante Finance Series 4's Class A2 Notes Rating Raised; Class B And C Notes Affirmed, No. 27, 2021
  • Banking Industry Country Risk Assessment: Italy, May 18, 2020
  • 2017 EMEA RMBS Scenario And Sensitivity Analysis, July 6, 2017
  • Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
  • European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
Primary Credit Analyst:Giovanna Perotti, Milan + 39 02 72 111 209;
Giovanna.Perotti@spglobal.com

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