Scope completed a monitoring review of the following notes issued by Juno 1 S.r.l.:

Class A (ISIN IT0005340614), EUR 99.4m: BBB+_SF;

Class B (ISIN IT0005340622), EUR 26m: not rated;

Class J (ISIN IT0005340630), EUR 1.9m: not rated

Juno 1 S.r.l. is a static cash securitisation of a EUR 957m portfolio (at closing) of Italian non-performing loans originated by Banca Nazionale del Lavoro S.p.A. and serviced by Prelios Credit Servicing S.p.A.. The transaction was closed on 26 July 2018.

The review took place on 9 July 2020 and was based on available payment information and investor and servicer reporting as of 31 January 2020, covering three interest payment dates since closing The review resulted in no action on Class A rating. Scope does not rate Class B or Class J. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found at www.scoperatings.com.

Key rating factors

The transaction exhibits a good performance with a cumulative gross collection ratio of 158.3%. Aggregate gross collections since the cut-off date have amounted to EUR 48.1m (of which 70% related to open debtors, i.e., debtors for which the recovery process was ongoing). This figure represents about 20.5% of Scope’s expected lifetime collections considered for the analysis of the class A notes. The amount of collections has so far outpaced Scope’s expectations.

The reported net profitability on fully resolved debtors (i.e., positions for which the recovery procedure was accomplished) was slightly above the servicer’s expectation at 100.3%. Resolved borrowers’ profitability is significantly below Scope base case expectation for secured borrowers (borrowers with at least one exposure guaranteed by a first lien mortgage), however, the profitability is almost aligned with Scope base case expectation for unsecured borrowers. Given that resolved borrowers (17 borrowers) represent only 2.3% of transaction’s total borrowers, the impact is currently not material for the transaction, however, it will be closely monitored.

Scope has observed a misalignment in the definition of the net present value cumulative profitability ratio in transaction’s documents, as the numerator is not aligned with the denominator regarding the date which is referenced for discounting rules. The documentation envisages that the numerator is computed using the transaction’s economic effective date (1 April 2018), whilst the denominator is computed with reference to the transaction’s transfer date (18 July 2018). The ratio provided by the monitoring agent and equal to 98.8% is calculated based on its definition in transaction’s documents, as per the above. This differs from the ratio computed by the servicer (100.3%) that is based on discounting rules using the transfer date for both numerator and denominator.

According to documentation, the NPV cumulative profitability ratio is defined as the ratio of the sum of NPV of net collections of all debt relationships which are exhausted debt relationship and (ii) the sum of the target price of all debt relationship which are exhausted debt relationship. Transactions’ cash flows are to be discounted at the economic effective date, the target price is computed with reference to the transfer date.

Contractual definitions have not been reviewed yet by the securitisation counterparties. However, Scope acknowledges that the different parties involved in the transaction are aware of this inconsistency and are actively seeking a solution. The impact is currently not material for the transaction.

CREDIT-POSITIVE (+)

Cumulative collections: Observed collections are outperforming the original business plan expectations at both gross and net levels, being respectively 158% and 177% of the original servicer’s projections as of 31 December 2019 (i.e. three collection periods since closing).

Recovery expenses: Observed recovery expenses amount to 2.3% of cumulative gross collections, this ratio is among the lowest of peer transactions rated by Scope.

Credit Enhancement: The class A note benefits from a robust credit enhancement level of 90.42%, which ranks among the highest of peer transactions rated by Scope.

CREDIT-NEGATIVE (-)

Italian economy: 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.

Property sales: The special servicer has sold 159 properties since closing, accounting for 17% of total properties. The aggregated sale amount is lower than the open market value of the related properties (ca. -44%). The registered discount is aligned with Scope’s lower bound expectations and it will be monitored in the context of future property sales.

Concentrated portfolio: The 10 and 100 largest debtor exposures respectively account for 12.5% and 47.8% of the portfolio’s current gross book value. The portfolio was already concentrated at closing, with the top 10 and 100 largest exposures accounting for 8.6% and 34.4% of the portfolio’s original gross book value. The portfolio’s current concentration is very high compared to peer transactions rated by Scope, exposing the transaction to idiosyncratic risks, introducing a certain degree of volatility in collections timing and amounts.

Scope Ratings reviews its ratings on an ongoing basis. Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodologies, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

The methodologies applicable for the reviewed rating (Non-performing loan ABS methodology, published on 3 September 2019, Methodology for counterparty risk in structured finance, published on 24 July 2019) are available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Rossella Ghidoni, Associate Director

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