OREANDA-NEWS. 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% (Apulia3) 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.