OREANDA-NEWS. October 13, 2015. Fitch Ratings has affirmed three tranches of Bipitalia Residential, an Italian RMBS originated and serviced by the Banco Popolare group (BP; BB/Stable/B), as follows:

Class A2 (ISIN IT0003685838) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0003685846) affirmed at 'AA+sf'; Outlook Stable
Class C (ISIN IT0003685861) affirmed at 'Asf'; Outlook Stable

KEY RATING DRIVERS
Solid Asset Performance
Over the last 12 months the volume of defaulted loans has remained stable at 1.1% of the initial pool, while loans in arrears have decreased to EUR6.5m from EUR7m. The small size of the remaining pool, currently around EUR95m (9.4% of the initial pool), explains why the proportion of loans in arrears has increased to 6.9% of the current pool from 5.8% in September 2014. New defaults have totalled EUR1.1m over the last three years.

Fitch believes that the high portfolio seasoning of 155 months, combined with a low average current loan-to-value ratio (around 27%), should underpin solid asset performance and limit losses from defaults.

Robust Credit Support
Credit enhancement available to the notes has built up substantially since closing in 2004 and now stands at 57.5% for class A2, 40.6% for class B and 20.5% for class C. The main reason for this is the swift repayment of the underlying portfolio, at an average annual rate of 25%, resulting in today's affirmation.

Ineligible Swap Counterparty
In May 2015, Commerzbank, the swap counterparty, was downgraded to 'BBB'/Positive/'F2' and to date has not collateralised the exposure or put in place any other remedial actions envisaged by the transaction documentation. Commerzbank is therefore no longer an eligible swap counterparty to support the current ratings of the notes, as per Fitch's counterparty criteria.

Fitch has analysed the transaction without considering the existing swap agreement and found that the current credit support is adequate to withstand corresponding interest rate stresses in the absence of hedging. This further justifies today's affirmation.

The agency has assumed that in a rising interest rate scenario mixed-rate loans (loans with the option to switch to fixed interest rate), currently 17.1% of the pool, would switch at the corresponding fixed rate. Meanwhile, capped floating-rate loans, about 5.7% of the pool, have been modelled at their cap rate, which will be triggered swiftly under Fitch's stressed interest rate scenarios. In addition, the spread of life floaters (74.4% of the portfolio) has been reduced to account for basis risk. Fixed-rate loans (2.8% of the pool) have been modelled as such.

Increasing Credit Support from Cash Reserve
The cash reserve target amount increased to EUR22m on the last payment date following a breach of the delinquency trigger. As a result, available excess spread will be diverted to further build up the cash reserve, currently at EUR16.7m, until it reaches its target level. This mechanism also implies that the class D principal deficiency ledger, currently at about EUR1m, will not be cleared and may increase due to new defaults.

RATING SENSITIVITIES
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 on the notes rated at this level.

Excessive reliance on the cash reserve for credit support for the class C notes may create strong dependency on the account bank's creditworthiness.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. 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 transaction's 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.

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 European Data Warehouse at beginning of June 2015.
-Transaction reporting provided by Banco Popolare as of end-September 2015.