The rating action is as follows:

Class A Asset-Backed Floating Rate Notes due 2037 (ISIN IT0005340465), EUR 170,809,000: assigned a final rating of BBB_SF

Class B Asset-Backed Floating Rate Notes due 2037 (ISIN IT0005340473), EUR 24,401,000: not rated

Class J Asset-Backed Variable Return Notes due 2037 (ISIN IT0005340481), EUR 11,420,000: not rated

For the detailed research report please click HERE.¹

The transaction is a static cash securitisation of an Italian NPL portfolio worth around EUR 697m by gross book value. Based on Scope’s adjusted pool balance, as further explained below under the section ‘quantitative analysis and key assumptions’, the pool comprises both secured (43.1%) and unsecured (56.9%) loans. The loans were extended to companies (81.1%) and individuals (18.9%) and were originated by Cassa di Risparmio di Asti S.p.A. and Cassa di Risparmio di Biella e Vercelli - Biverbanca S.p.A. Secured loans are backed by residential (46.7% of indexed property valuations) and non-residential (53.3%) properties that are highly concentrated in northern Italy (98.0%). The issuer acquired the portfolio at the transfer date, 16 July 2018, but is entitled to all portfolio collections received since 31 December 2017 (portfolio cut-off date).

The structure comprises three classes of notes with fully sequential principal amortisation: senior class A, mezzanine class B, and junior class J. The class B interest ranks senior to class A principal at closing but will be subordinated if the actual amount collected is around 10% below the level expected in the servicer’s business plan. Class J principal and interest are subordinated to the repayment of the senior and mezzanine notes.

Asset information reflects aggregation by loans and Scope’s pool adjustments are highlighted in the ‘quantitative analysis’ section.

1 The link was added on 12 July 2018.

Rating rationale

The rating is mainly driven by the recovery amounts and timing from the NPL assets in the portfolio. Recovery and timing assumptions applied in the analysis incorporate Scope’s economic outlook for Italy and positive view of the special servicer’s capabilities. The rating is supported by the structural protection provided to the notes, the absence of equity leakage provisions, liquidity protection, and an interest rate hedging agreement.

The rating also addresses exposures to the key transaction counterparties: i) Cassa di Risparmio di Asti S.p.A. and Cassa di Risparmio di Biella e Vercelli - Biverbanca S.p.A., the two originators (regarding representation and warranties, and the payments to be made by the borrowers), and providers of the limited-recourse loan; ii) Prelios Credit Servicing S.p.A., the servicer; iii) Securitisation Services S.p.A., the back-up servicer facilitator, and monitoring agent; iv) KPMG Fides Servizi di Amministrazione S.p.A., the corporate services provider, computation agent, and noteholders’ representative; v) BNP Paribas Securities Services (Milan Branch), the issuer’s transaction bank, agent bank, and paying agent; vi) Finanziaria Internazionale Investments SGR S.p.A., the cash manager; and vii) Mediobanca - Banca di Credito Finanziario S.p.A., the cap counterparty. In order to assess counterparty risks, Scope has taken into account its rating on BNP Paribas (AA-/S1), the parent company of BNP Paris Securities Services, as well as publicly available ratings on BNP Paribas Securities Services (Milan Branch) and Mediobanca. In Scope’s view, none of these exposures limits the maximum rating achievable by the transaction.

Scope has applied a specific analysis to recoveries and has differentiated between secured and unsecured exposures. For secured exposures, collections were based mostly on the latest property appraisal values which were stressed to account for liquidity and market value risks; recovery timing assumptions were derived using line-by-line asset information detailing the type of legal proceeding, the court issuing the proceeding, and the stage of the proceeding as of portfolio cut-off date. For unsecured exposures, Scope used historical line-by-line market-wide recovery data on defaulted loans between 2000 and 2017 and calibrated recoveries, taking into account that unsecured borrowers were classified as defaulted for an average of 3.9 years as of portfolio cut-off date.

Key rating drivers

Location (positive). The portfolio is almost exclusively concentrated in northern Italian regions, including the metropolitan areas of Turin and Milan. These regions benefit from the country’s most dynamic economic conditions and, in general, the most efficient tribunals.

Portfolio servicing (positive). The fee structure aligns the servicer’s incentives with investors’ interests. The servicer also has a solid record in NPL portfolios. The monitoring agent will assist the issuer in finding a suitable replacement in the event of a servicer disruption. The servicer has also provided a line-by-line business plan at closing, detailing the expected collections and legal expenses for each loan.

Real estate recovery (positive). Scope expects a gradual recovery of Italian real estate prices, notwithstanding the weak medium-term economic growth potential. The cyclical recovery from the current trough will be driven by moderate private-sector indebtedness and improving property affordability.

Large share of unsecured loans with relatively high seasoning (negative). Unsecured loans represent 56.9% of the pool. The weighted average time since default is approximately 3.9 years for the unsecured portion. Most unsecured recoveries are realised in the first years after a default according to historical data.

Large share of loans in bankruptcy or with no proceedings (negative). 53.4% of the portfolio’s gross book value corresponds to loans either in bankruptcy or with no ongoing legal proceedings. Compared with non-bankruptcy proceedings, bankruptcies typically result in lower recoveries and take longer to be resolved.

Collateral liquidity risk (negative). The nature of the collateral assets, in Scope’s opinion, makes collateral liquidity risk and the associated fire sales discount assumptions, the primary source of portfolio performance stresses.

Collateral appraisal values (negative). NPL collateral appraisals are more uncertain than standard appraisals because repossessed assets are more likely to deteriorate in value.

Rating-change drivers

Legal costs (positive). Scope has factored in the legal expenses for collections as detailed in the servicer’s business plan. A decrease in legal expenses could positively affect the rating.

Servicer outperformance regarding recovery timing (positive). Consistent servicer outperformance in terms of recovery timing could positively impact the rating. Portfolio collections will be completed over a weighted average period of 3.5 years according to the servicer’s business plan. This is about 27 months faster than the recovery timing vector applied in Scope’s analysis. Scope expects recent legal reforms to have a positive impact on court performance and has applied a limited stress on recovery timing assumptions.

Fragile economic growth (negative). The trajectory of Italy’s public debt is of concern given its weak medium-term growth potential of 0.75%, alongside the new government’s plans to reverse reforms, raise spending and cut taxes.

Interest rate cap (negative). An interest rate cap spread, with a low strike at 0.30% and an increasing, high strike schedule ranging from 0.50% as of closing to 3.00% in January 2031, together with a cap on the notes following the high strike schedule partly mitigates the risk of increased liabilities on the notes in the event of a rise in Euribor. Delayed recoveries beyond Scope’s stressed recovery timing vector would increase the mismatch between the swap notional and the outstanding principal of the class A and class B notes.

Quantitative analysis and key assumptions

Scope has analysed the transaction’s cash flow, incorporating its structural features, to calculate the expected loss and weighted average life for the tranche. As the first step, Scope analysed the assets to produce a rating-conditional cash flow projection of gross recoveries for the portfolio of defaulted loans.

Scope has adjusted the pool’s gross book value using information on collections and sold properties. Specifically, Scope’s adjustments have reduced the pool to EUR 674m in gross book value by excluding portfolio loans that the agency has assumed to be closed, based on collections already received and cash in court to be received. Collateral connected with these positions has also been removed. We assume cash in court is received with a one-year delay. All stratifications in this rating announcement include these adjustments.

For the analysis of the class A, Scope has taken into account the adjusted pool and has assumed a gross recovery rate of 33.7% over a weighted average life of 6.1 years (excluding collections already received). By portfolio segment, Scope has assumed a gross recovery rate of 54.9% and 10.1% for the secured and unsecured portfolios, respectively reflecting rating-conditional haircuts. Scope has applied an average combined security value haircut of 35.1%, which consists of i) an average fire-sale discount (including valuation type haircuts) of 29.0% to security valuations, reflecting liquidity or marketability risks, and ii) moderate property price decline stresses (6.1% on average), reflecting Scope’s view of downside market volatility risk. The recovery rate assumption for the unsecured loans incorporate a 16.0% rating conditional haircut.

Scope has captured idiosyncratic risk by applying a 10.0% rating-conditional recovery rate haircut to the 10 largest borrowers for the analysis of the class A notes.

Stress testing

Stress testing was performed by applying rating-adjusted recovery rate assumptions.

Cash flow analysis

Scope analysed the cash flow vectors from the assets and took into account the transaction’s structural features, such as the waterfall, note size, the coupon on the notes, hedging, senior costs, as well as fixed- and collections-based servicing fees. The outcome of the analysis produces an expected loss and an expected weighted average life for the notes.

Rating sensitivity

Scope has tested the resilience of the rating against deviations from expected recovery rates and recovery timing. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

Scope has tested the sensitivity of the analysis to deviations from the main input assumptions: recovery-rate level and recovery timing.

For class A, the following shows how the results change compared to the assigned credit rating in the event of:

• a decrease in secured and unsecured recovery rates by 10%, zero notches;
• an increase in the recovery lag by two years, two notches.

Methodology

The methodology applied for this rating is the General Structured Finance Methodology. Scope also applied the principles in the Methodology for Counterparty Risk in Structured Finance. On 25 July 2018, Scope published a dedicated methodology to analyse non-performing loans ABS – the proposal is available on www.scoperatings.com. Scope does not expect that this proposal, under its current form, shall affect the rating assigned to the class A notes issued by Maggese S.r.l. All documents are available on www.scoperatings.com.

All documents are available on www.scoperatings.com More detail regarding the approach can be found in the ‘rating rationale’ and ‘quantitative analysis and key assumptions’ sections above.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.

Solicitation, key sources and quality of information

The rated entity and its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, the rated entities’ agents, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s rating originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings GmbH has relied on a third-party asset audit. The external asset audit has no impact on the credit rating.
Prior to the issuance of the rating, the rated entity was given the opportunity to review the rating and the principal grounds on which it is based. Following that review, the rating was not amended before being issued.
 

Regulatory disclosures
This credit rating is issued by Scope Ratings GmbH.
Lead analyst: Benoit Vasseur, Director
Person responsible for approval of the rating: Guillaume Jolivet, Managing Director
The rating was first released by Scope on 26 July 2018.
The rating concerns a financial instrument which has been rated by Scope for the first time.

Potential conflicts
Please see www.scoperatings.com. for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2018 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstrasse 5 D-10785 Berlin.

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