The latest information on the ratings, including rating reports and related methodologies are available on this LINK.

The rating actions are as follows:

Class M1 (ISIN IT0005395147), EUR 168.9m: definitive rating of A-SF

Class M2 (ISIN IT0005395717), EUR 19.4m: definitive rating of BBB+SF

Class M3 (ISIN IT0005395725), EUR 19.4m: definitive rating of BBBSF

Class M4 (ISIN IT0005395865), EUR 20.3m: not rated

Class J (ISIN IT0005395733), EUR 50.7m: not rated

Transaction overview

Amalia SPV S.r.l. is a synthetic securitisation transaction of a static portfolio of Italian payroll-deductible (CQS) loans extended to borrowers in Italy and originated by BNL Finance S.p.A. (part of BNP Paribas group). CQS loans are collateralised by the debtor’s salary or pension and, for private employees, by any accrued severance amount (Trattamento di Fine Rapporto). Instalments cannot exceed 20% of the borrower’s net monthly salary or pension for CQS loans and 50% for Delegazione di Pagameto (DP) loans. The transaction closed 23 December 2019 and has its final maturity in October 2029.

The transaction structure comprises six tranches: the senior tranche, Classes M1 to M4, jointly the mezzanine tranches and the junior tranche. As of November 2019, the reference portfolio of the notes is worth EUR 1,778m and comprises CQS (97.2%) and DP (2.8%) loans extended to employees working for the public administration (10.5%), para-public administration (4.8%) and the private sector (1.5%) as well as pensioners (83.8%).

Rating rationale 

The ratings reflect: i) the legal and financial structure of the transaction; ii) the quality of the underlying collateral; iii) the insurance protection against life and employment events; iv) the ability of BNL Finance as originator and reference portfolio servicer; v) the ability of Securitisation Service S.p.A. in its role as risk-transfer loan servicer, corporate servicer, noteholders ‘representative and calculation agent; and vi) the counterparty exposure to BNP Paribas Securities Services, Milan Branch as account bank, originator account bank and paying agent.

The ratings account for the respective credit enhancement of the tranches and the pro-rata amortisation mechanism of the structure, which is subject to time, performance and amortisation triggers.

The ratings are also driven by the securitised portfolio’s characteristics, its expected performance, and support from the concentrated pool of insurance companies covering life or employment events. The ratings also incorporate our positive assessment of the servicer’s abilities and incentives. We considered Italian sovereign risk by assessing the impact of a stress scenario affecting the Italian government and the associated loss severity for the securitised assets.

Key rating drivers

Experienced originator (positive). BNL Finance is among the most experienced CQS loan originators in Italy, with a track record of above-average performance for its loan book.

CQS loans with low historical losses (positive). CQS loans incur lower losses than standard unsecured consumer loans, primarily because the loans are fully insured, and instalments are withheld by the borrower’s employer and paid directly to the lender.

Partial-sequential amortisation (positive). Time, performance and amortisation triggers protect the class M1 notes from an excessive credit enhancement release through the exclusion of the more junior notes from amortisation.

Static portfolio (positive). The portfolio will start amortising immediately after closing, reducing the risk of performance volatility compared to revolving transactions.

Insurance company concentration (negative). The insurance coverage of the pool is concentrated among only three insurance companies, with Cardif Assicurazioni S.p.A. representing 76.4% of the total exposure to life events and Net Insurance S.p.A. representing 82.1% of the total exposure to employment events. A failure in honouring their obligations will negatively impact the portfolio recovery rate.

Exposure to public entities (negative). A large portion of the portfolio is exposed to public entities that pay salaries or pensions to borrowers (98.5%). These borrowers normally have lower default rates than those in the private sector. However, such a high concentration can increase vulnerability to a sovereign default.

Excess spread (negative). Given the synthetic features of the transaction, no excess spread will be available to the structure, which is generally significant for comparable Italian CQS transaction.

Counterparty risk (negative). All funds available for note principal and interest payment are exposed to the credit quality of BNP Paribas group (highly rated by Scope), the holder of the collateral account and payer of the risk-transfer loan interest. A replacement of the bank as account holder upon loss of BBB partially mitigates the risk.

Upside rating-change drivers

A rating upgrade of Italy, an improvement of the insurance companies’ credit profile or better-than expected pool performance may lead to an upgrade of the ratings.

Downside rating-change drivers

A significant deterioration in the credit profile of the insurance companies leading to lower rating-conditional recovery rate assumptions could negatively impact the ratings. Adverse reference portfolio performance versus our expectations or a significant credit event impacting the state of Italy could also have a negative effect on the ratings.

Quantitative analysis and key assumptions

Scope used its cash flow model to replicate the risk-cover release mechanisms of this synthetic transaction, considering the portfolio characteristics and the main structural features. Scope applied its large homogenous portfolio approximation approach when analysing the collateral pool and projecting its credit performance during its amortisation period. In this analysis, Scope assumed an inverse Gaussian distribution probability distribution of the portfolio’s default rate, to calculate the expected loss of each rated tranche. The analysis also provides the expected weighted average life of each tranche. Scope has considered the amortisation profile of the assets, liabilities’ repayment mechanisms and the evolution in the pool’s composition. Scope default timing assumption reflects a constant default intensity.

For the analysis of the notes, Scope assumed a mean default rate of 6.5%, a coefficient of variation of 30%, and rating-conditional recovery rate assumptions of 78.1% and 78.2% for the class M1 and the classes M2 and M3, respectively.

Scope’s analysis took Italian sovereign risk into account, considering the impact of the following stress scenario: i) 50% of the public sector borrowers in the portfolio is fully suspended for two years; and ii) 25% of the public sector portfolio defaults.

Scope has analysed default and recovery vintage data from 2009 to 2019, reflecting the performance of the CQS loan book of BNL Finance, which Scope considers a representative sample of the portfolio being securitised. Scope did not consider a long-term reference default distribution because the vintage data captures more than a full economic cycle of performance.

Sensitivity analysis

Scope tested the resilience of the ratings against deviations of the main input parameters: the mean-default rate and the recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the ratings to input assumptions and is not indicative of expected or likely scenarios.
The following shows how the quantitative results change when the portfolio’s expected mean default rate is increased by 50% and the portfolio’s expected recovery rate is reduced by 50%, respectively:

Class M1: sensitivity to default rate, one notch; sensitivity to the recovery rate, three notches.
Class M2: sensitivity to default rate, zero notches; sensitivity to the recovery rate, six notches.
Class M3: sensitivity to default rate, one notch; sensitivity to the recovery rate, more than seven notches.

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

Cash flow analysis
Scope has primarily analysed the portfolio rating-conditional recovery rate and its impact on the rated instruments using the Scope Portfolio Model (Model) Version 1.
Scope analysed the transaction’s risk cover release mechanisms using the Scope Cash Flow SF EL Model Version 1. This model incorporates default and recovery rate assumptions over the portfolio’s amortisation period and the transaction’s main structural features such as the notes’ priorities of payment, size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

Methodology
The methodology used for these ratings, the ‘Consumer and Auto ABS Rating Methodology’, and the ‘Methodology for Counterparty Risk in Structured Finance’ are available on www.scoperatings.com.
Historical default rates of the entities rated by 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.
Scope analysts are available to discuss the details of the rating analysis and the risks to which this transaction is exposed.

Solicitation, key sources and quality of information
The issuer of the rated instruments and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the issuer’s agents, third parties and Scope internal sources. Scope considers the quality of information available to Scope on the issuer of the rated instruments and instrument to be satisfactory. The information and data supporting Scope’s ratings 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 received a third-party asset due diligence assessment. The external due diligence assessment was considered when preparing the ratings and it has no impact on the credit ratings.
Prior to the issuance of the ratings, the rated entity was given the opportunity to review the ratings and the principal grounds on which the credit ratings is based. Following that review, the ratings was not amended before being issued.

Regulatory and legal disclosures
These credit ratings are issued by Scope Ratings GmbH.
Lead analyst: Leonardo Scavo, Analyst.
Person responsible for approval of the ratings: David Bergman, Managing Director
The ratings were first released by Scope on 23 December 2019.

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
© 2019 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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