OREANDA-NEWS. Fitch Ratings has taken rating actions on the Apulia series as 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) affirmed at 'A-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) affirmed at 'A-sf'; 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) upgraded to 'AA+sf' from 'AA-sf'; Outlook Stable;
Class C (ISIN IT0004127590) upgraded to 'A-sf' from 'BBBsf'; Outlook Stable.

The Apulia transactions are prime Italian RMBS backed by mortgages originated by Banca Apulia, now part of the Veneto Banca group, and serviced by Veneto Banca.

KEY RATING DRIVERS
Sufficient Credit Enhancement
As of the latest reporting dates, the credit protection levels available to the rated notes ranged from 13.7% of the current portfolio balance (class C - Apulia 4) to 122.3% (class A - Apulia 2), which Fitch considers sufficient to affirm most tranches and to upgrade the class B and C notes of Apulia 4.

Reserve funds are not allowed to amortise along with the collateral balance to the extent they are below their target amount, which is currently the case for all transactions in the series. As a result, the cash reserves currently provide more credit support than they would otherwise do, and are the only source of credit enhancement for the class C in each transaction of the series.

Asset Performance within Expectations
During the last 12 months, late stage arrears (defined as mortgages with at least three monthly instalments overdue) decreased across all the transactions and currently range between 0.6% (Apulia 2) and 1.1% (Apulia 4) of the current collateral balance, lower than the Italian RMBS Index (1.7%). Gross cumulative defaults (mortgages with more than seven monthly payments overdue) range between 6% (Apulia 2) and 8.3% (Apulia 3 and 4) of the original portfolio balance, higher than the Italian average (4.6%), which reflects the pools geographical concentration in the south of Italy and the transactions' rather conservative default definition.

In Fitch's view, the low weighted average current loan-to-value ratios, between 29% (Apulia 2) and 34% (Apulia 4), and the high seasoning of the transactions, between approximately nine (Apulia 4) and 12 years (Apulia 2), and the limited presence of mortgages granted to SMEs in Apulia 3 (4% of the outstanding portfolio) and Apulia 4 (5.7%), will support future performance. This further supports today's rating actions. In determining the default probability of the commercial mortgages, Fitch applied solely its RMBS rating criteria, which specifically envisage a default probability adjustment for SME borrowers.

Pools Geographical Concentration in the South
Fitch believes that the main risk factor, which could cause deterioration in the asset performance, is represented by the geographic concentration in southern Italy, where historical default rates are higher than in the rest of the country. According to Fitch RMBS criteria, the portfolio's geographic distribution is compared with the population distribution across regions. Where there is a significant regional concentration that is twice the population or above, a 30% increase is applied to the default probability of the proportion of the pool in excess of that region's population percentage.

Account Bank Constrains Class C Rating
The class C notes' ratings rely on the respective reserve funds as unique sources of credit enhancement. Therefore, their ratings are capped by the transactions' account bank's minimum rating of 'F1' in the form of the account bank replacement trigger. Hence the ratings of the class C notes are capped at 'A-', which is the lowest Long-term rating associated with 'F1' on Fitch's rating scale.

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 rated at this rating level.

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.

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.

Overall and together with the assumptions referred to above, 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 Veneto Banca as at end-December 2015 (Apulia 2 and 4) and end-February 2016 (Apulia 3)
-Transaction reporting provided by Veneto Banca as at end-December 2015

MODELS
The models below were used in the analysis. Click on the link for a description of the model.