OREANDA-NEWS. Fitch Ratings has upgraded one and affirmed seven tranches of the Mecenate series, three RMBS originated and serviced by Banca Popolare dell'Etruria e del Lazio (BPEL).

Mecenate S.r.l. Series 2007 (M2007):
Class A (ISIN IT0004224116) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0004224124) affirmed at 'AA+sf'; Outlook Stable
Class C (ISIN IT0004224132) upgraded to 'A-sf' from 'BBBsf'; Outlook Stable

Mecenate S.r.l. 2009 (M2009):
Class A (ISIN IT0004446602) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0004446909) affirmed at 'BBB-sf'; Outlook revised to Positive from Stable

Mecenate S.r.l. Series 2011 (M2011):
Class A1 (ISIN IT0004750078) affirmed at 'AA+sf'; Outlook Stable
Class A2 (ISIN IT0004750094) affirmed at 'AA+sf'; Outlook Stable
Class A3 (ISIN IT0004750086) affirmed at 'AA+sf'; Outlook Stable

KEY RATING DRIVERS
Robust Credit Enhancement
The credit support available to the outstanding notes has built up over the last year as a result of sequential amortisation and swift repayment of the underlying portfolios, at an average annual rate between 17% (M2011) and 18.4% (M2007). In its analysis Fitch found that the available credit enhancement is sufficient to withstand stresses associated with the current ratings, resulting in today's positive rating actions.

Dependency on Transaction Bank
Credit support for the class C of M2007 mainly comes from the available cash reserve, retained with BNP Paribas Securities Services, London Branch whose parent is rated 'A+'/Stable/'F1'. In Fitch's view this constitutes excessive counterparty exposure to the transaction account bank, and therefore the maximum achievable rating for the class C notes is at the IDR of the transaction account bank. Fitch has capped the maximum achievable rating of the class C notes at 'A-sf', given the rating trigger of the transaction account bank is 'F1' which corresponds to a minimum IDR of 'A-'.

Diverging Asset Performance
Over the last 12 months the proportion of late stage arrears (loans with three or more monthly payments overdue) has remained broadly unchanged between 1.3% (M2011) and 2% (M2009) of the current pool. Meanwhile, the volume of gross defaults has increased by 40bp in M2007, 90bp in M2009 and 120bp in M2011, reaching 6% of the initial pool in M2007, 10.1% in M2009 and 6.2% in M2011.

In Fitch's view, the larger volume of defaulted assets in M2009 and M2011 reflects the more prominent exposure towards self-employed borrowers, which are affected by more volatile income.

Extraordinary Administration Resolution
In Fitch's view, the resolution of BPEL extraordinary administration had no impact on the transactions as set-off risk associated with written-off subordinated debt is minimal (See also 'Fitch: Minimal Set-off Risk in RMBS After Italy Bank Resolutions'). In addition, discussions with the servicer confirmed Fitch's view that over the last year extraordinary administration had no negative impact on the portfolio servicing.

Adequate Structural Mitigants
Fitch found that the combination of an appointed back-up servicer (CR Volterra), fully funded cash reserves in M2007 and M2009 and liquidity reserves in all three deals provide sufficient liquidity in case of servicer disruption for more than one payment date in a rising Euribor scenario.

The agency also views that the commingling reserves in M2007 and M2009 adequately cover the commingling risk exposure. As no commingling reserve is available in M2011 and collections are concentrated in the last days of each month, Fitch reduced the available credit enhancement by the estimated one-month commingling loss (1.5% of the portfolio balance). The notes' ratings were found to be resilient to this stress.

Reduced Excess Spread
In October 2016 the note margin for the class A1 and A2 notes of M2011 will double. Fitch factored in the step-up in the analysis through a reduction of the available annual excess spread by 60bp to 0. The adjustment had no effect on the ratings, as a result of the robust credit enhancement.

Loan Modifications
Maturity extensions are granted by BPEL to 15.5% of the current pool in M2009 and 4.6% in M2011. This type of modification is usually granted to borrowers who struggle to pay the instalment under the original mortgage terms. As a result, Fitch has associated a higher probability of default (PD) to these loans. The adjustment had no effect on the ratings.

Exposure to Originator Staff
Fitch estimates that 13.9% of the current pool of M2009 is granted to BPEL employees, which would be vulnerable to default risk in case of BPEL's bankruptcy. In its analysis, the agency applied a 100% PD to this portion of the pool and found that there was no impact on the ratings due to the robust credit support.

Limited Recovery Income
The agency found that the recovery income has been limited across transactions since recoveries as a proportion of the cumulative defaults range between 5.3% (M2011) and 35% (M2009). As a result, Fitch has capped the maximum recovery rate at 100% of the defaulted balance.

Un-provisioned Pipeline of Defaults
Over the last 12 months the pipeline of un-provisioned defaults decreased to 1.1% of the current note balance in M2007, while it increased to 7.1% and 6.4% in M2009 and M2011 from 5.4% and 3.9% respectively a year ago. Fitch accounted for this in its analysis and concluded it had no effect on the notes ratings.

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.

Deterioration in asset performance beyond Fitch's standard assumptions could also trigger negative rating actions.

An abrupt increase in reference interest rates beyond Fitch's stresses could have a negative impact on un-capped floating-rate loans originated in a low interest rate environment (55.8% of the current pool in M2011) and constant-instalment variable-maturity loans (15.1% of the current pool in M2011).

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 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.

Applicable to M2007 and M2009
Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions 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.

Applicable to M2011
Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Loan-by-loan data provided by European Data Warehouse as at 6 October 2015
-Transaction reporting provided by Banca Popolare dell'Etruria e del Lazio as at 6 October 2015 (M2007 and M2011) and 9 October 2015 (M2009)