Rating action

The transaction comprises the following instruments:

Class A Asset-Backed Floating Rate Notes due 2037 (ISIN IT0005340465): EUR 141.4m: downgraded to BBB-_SF from BBB_SF

Class B Asset-Backed Floating Rate Notes due 2037 (ISIN IT0005340473): EUR 24.4m: not rated

Class J Asset-Backed Variable Return Notes due 2037 (ISIN IT0005340481): EUR 11.4m: not rated

Scope’s review was based on available payment information and investor and servicer reporting through January 2020.

Transaction overview

Maggese S.r.l. is a static cash securitisation of secured and unsecured non-performing loans (NPLs) extended to corporates and individuals in Italy. The loans were originated by Cassa di Risparmio di Asti S.p.A. and Cassa di Risparmio di Biella e Vercelli - Biverbanca S.p.A. and are serviced by Prelios Credit Servicing S.p.A. The transaction closed on 26 July 2018 and the class A legal maturity is in July 2037.

Through the 31 December 2019 collection period, aggregate gross collections were EUR 40.6m versus original business plan expectations of EUR 43.9m. No mezzanine interest subordination event has occurred as both cumulative collections and profitability ratios are above 90% and there is no unpaid interest on class A notes.

80.2% of gross collections (EUR 32.6m) come from open debtors (i.e. debtors for which the recovery process is still ongoing). Total available gross collections are split between judicial proceeds (73.6%), notesales proceeds (14.0%), DPO proceeds (6.3%) and other types of collection (6.2%).

36 borrowers are considered closed debtors. They represent an aggregate gross book value of EUR 18.4m. Gross collections linked to closed debtors are EUR 8.0m. The net profitability ratio for closed positions, at 97%, is slightly underperforming the level in the initial business plan. Gross collections from closed debtors are split between notesales proceeds (58.0%), DPO proceeds (25.1%), judicial proceeds (9.7%) and indemnity/giveback proceeds (7.2%).

17.2% of the class A notes’ notional has amortised. As a result, class A credit enhancement relative to the portfolio’s outstanding gross book value has increased to 78.3% from 75.5%.

Rating rationale

The rating action is driven by the observed and expected performance of the transaction, as well as Scope’s updated modelling assumptions, which reflect transaction performance and current and developing macro-economic factors. Scope also compared the transaction’s performance to its own recovery assumptions, taking into account enhanced views on asset resolution timing, recovery estimates and macro-economic fundamentals, all developed through transaction-specific observations and benchmarking.

Counterparties continue to support the rating: 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. Scope assessed counterparty risks using its rating on BNP Paribas, the parent company of BNP Paris Securities Services, as well as publicly available ratings on BNP Paribas Securities Services (Milan Branch) and Mediobanca.

Key rating drivers

Senior notes’ liquidity protection (positive): A cash reserve protects the liquidity of senior noteholders, covering senior fees and interest on Class A notes. It currently stands at EUR 6.8m (4% of class A notes’ principal amount at the closing date).

Gross cumulative collections (negative): Although the net cumulative collection ratio is at 101.3%, observed cumulative gross collections are 92.4% of the original business plan expectations through 31 December 2019, i.e. three collection periods since closing.

Closed debtors’ profitability (negative): The net profitability ratio for closed positions, at 97%, is slightly underperforming the level in the initial business plan. Actual gross collections linked to closed debtors are also about 10% lower than Scope’s expectations at closing for the borrowers in question. However, the net present value cumulative profitability ratio is at 103.7%.

Italian economy (negative): The Italian economy faces a deep recession in 2020 fuelled by the Covid-19 pandemic. Despite governmental support measures, increased collateral liquidity risk and weakened borrower liquidity positions negatively affect the recovery prospects.

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.

Rating-change drivers

Positive. A decrease in legal expenses could positively affect the rating.

Positive. Consistent servicer outperformance in terms of recovery timing and the total amount of collections could positively impact the rating.

Negative. Servicer performance which falls short of Scope’s collection amounts and timing assumptions could negatively impact the rating.

Negative. If the Covid-19 pandemic lasts longer than expected, the supportive measures taken by the Italian government may prove insufficient and the impact on debtors could worsen. This could lead to lower collection amounts and delayed recovery timings, both negatively impacting the rating.

Quantitative analysis and assumptions

Scope analysed cash flows, reflecting the transaction’s structural features, to calculate each tranche’s expected loss and weighted average life. Scope analysed the assets to produce a rating-conditional cash flow projection of gross recoveries for the portfolio of defaulted loans.

Scope has updated its modelling assumptions to reflect the current performance of the transaction. The BBB- rating scenario incorporated a gross recovery rate of 33.5% over a weighted average life of 5.1 years. A baseline (B rating category) recovery rate of 37.0% was considered over a weighted average life of 4.6 years.

By portfolio segment, Scope assumed a BBB- gross recovery rate of 50.3% and 10.9% for the secured and unsecured portfolios, respectively. Scope assumed a B gross recovery rate of 55.4% and 12.2% for the secured and unsecured segments, respectively. Scope captured idiosyncratic risk by applying rating-conditional recovery rate haircuts to the 10 largest borrowers of 0% and 8.3%, for B and BBB- recovery rate scenarios, respectively.

Sensitivity analysis

Scope tested the resilience of the rating to deviations in 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. The following shows how the results for class A notes change compared to the assigned rating in the event of:

• 10% haircut to recoveries, one notch decrease;
   
• a one-year recovery lag increase, zero notches.

Rating driver references
1. Confidential documents of issuer, arranger and originators
2. Confidential servicer reports
3. Scope’s economic research

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

Cash flow analysis
Scope performed a cash flow analysis of the transaction using the Scope Cash Flow SF/EL Model Version 1.1. The analysis incorporated recovery rate and timing assumptions. It also took into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The analysis provided an expected loss and an expected weighted average life for the notes.

Methodology
The methodologies used for this rating were Scope’s ‘Non-Performing Loan ABS Rating Methodology’ published on 3 September 2019 and its ‘Methodology for Counterparty Risk in Structured Finance’ published on 24 July 2019. All documents are available on https://www.scoperatings.com/#!methodology/list.
The model/s used for this rating(s) Scope Cash Flow SF/EL Model Version 1.1. is available in Scope’s list of models, published under: https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. 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 definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.

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 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 received a third-party asset due diligence assessment at closing. The external due diligence assessment was considered when preparing the rating and it has no impact on the credit rating.
Prior to the issuance of the rating action, the rated entity was given the opportunity to review the rating and the principal grounds on which the credit rating is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Benoit Vasseur, Director
Person responsible for approval of the rating: David Bergman, Managing Director
The rating was first released by Scope on 26 July 2018.

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
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