Rating action

The transaction comprises the following instruments:

Class A (ISIN IT0005351330), EUR 421.1m: downgraded to BB+_SF from BBB-_SF

Class B (ISIN IT0005351348), EUR 62.9m: not rated

Class J (ISIN IT0005351355), EUR 10.8m: not rated

Scope’s review was based on available servicer and payment reports capturing performance through the 30 September 2020 collection period, as well as available investor reports through the 30 April 2020 payment date.

Transaction overview

Aqui SPV S.r.l. is a static cash securitisation of secured and unsecured non-performing loans (NPLs) extended to companies and individuals in Italy. Prelios Credit Services S.p.A. is the servicer. The loans were originated by BPER Banca S.p.A., Cassa di Risparmio di Bra S.p.A. and Cassa di Risparmio di Saluzzo S.p.A. The transaction closed on 7 November 2018, with its legal maturity falling in October 2038.

As of 30 September 2020, cumulative gross collections (EUR 179.5m) are 90.8% of the original business plan, while cumulative net collections (EUR 172.2m) are 95.9% of the original business plan. Closed borrowers (i.e. borrowers for which the recovery process has fully concluded) represent 37.0% of gross collections. The sources of total gross collections are split between judicial proceeds (64.0%), discounted pay-off (‘DPO’) proceeds (28.6%), indemnities (2.8%) and other sources of collections (4.6%).

The reported present value cumulative profitability ratio on closed positions is 112.2%. This figure is calculated on a net basis.

Recovery expenses since inception amount 4.5% of gross collections, which is in line with Italian NPL transactions rated by Scope.

22.7% of the Class A notional balance has amortised since closing. As a result, the Class A notes’ outstanding balance relative to outstanding GBV has decreased to 22.7% from 26.2% at closing.

Rating rationale

The rating action is mainly driven by Scope’s updated modelling assumptions, which reflect the agency’s view that the consequences of Covid-19 will weigh negatively on transaction performance going forward. Key updates include an increased average collection delay of at least one year on secured positions, expected property price declines of about 5% in the short term, and potentially lower unsecured recovery proceeds. Scope expects base case lifetime collections (B rating category) to be 7.6% lower compared to the gross expected collections forecasted at closing.

Transaction performance has generally been in line with expectations since closing; however, the timing of collections has been slowing down from the second payment date to through the fourth payment date. 47.3% of all cumulative collections were realized on the first payment date. At the same time, recovery expenses have averaged 8.0% of semi-annual collections from the second payment date and onwards. The servicer’s collection strategy has generally been consistent; however, DPO resolutions (typically the most efficient strategy) have trended lower since the first payment date, averaging 21.1% over the last three payment dates compared to 37.0% in the first.

The Class B interest deferral trigger thresholds have not yet been breached. Class A principal repayments are made senior to Class B interest payments if either the cumulative collection ratio or the present value profitability ratio fall below 95% of the original business plan.

No servicing underperformance subordination event has been reported through the first four payment dates. The threshold for that to occur is when the present value cumulative profitability ratio falls below 100% of the business plan. There is no servicer underperformance subordination trigger for cumulative collections, which does not protect the Class A noteholders should there be collection shortfalls.

Realised collections from closed positions are 113.9% of Scope’s original BBB- scenario expectations. Realized cumulative collections through four payment dates are 1.7x Scope’s original BBB- scenario.

Expected lifetime collections in the most recent business plan are 3.9% lower than the original plan. Adjustments to the servicer’s business plan do not impact Scope’s own recovery assumptions.

Relevant transaction counterparties are: i) Prelios Credit Servicing S.p.A., the servicer and master servicer; ii) Securitisation Services S.p.A., the back-up master servicer; iii) BNP Paribas Securities Services, Milan Branch, account bank, agent bank, cash manager and principal paying agent; and iv) and JP Morgan AG as interest rate cap provider. All counterparties continue to support the ratings.

Key rating drivers

CREDIT-POSITIVE (+)

Profitable closed positions: The most recent servicer report indicates a 112.2% present value cumulative profitability ratio on closed positions¹.

Senior notes’ liquidity protection: A cash reserve, 5% of the Class A notes, protects the liquidity of senior noteholders, covering nearly 20 months of senior fees and interest on the Class A notes^1,2.

CREDIT-NEGATIVE (-)

Italian economy: The Italian economy faces a deep recession fuelled by the Covid-19 pandemic³. Despite government support measures, increased collateral liquidity risk and weakened borrower liquidity positions negatively affect recovery prospects.

Cumulative collections: Cumulative gross collections are now 90.8% of the original business plan’s expectation through 30 September 2020, with the cumulative collection ratio at 95.9%. The ratio has been steadily declining since the first payment date on 30 April 2019, when gross and cumulative collection ratios were 108.4% and 117.3%, respectively¹.

Rating-change drivers

POSITIVE (+)

An unlikely scenario of rapid economic recovery resulting in servicer outperformance compared to Scope’s updated assumptions in terms of recovery timing and the total amount of collections could positively affect the ratings.

An increased focus on DPO resolution strategies would potentially improve collection delays, while decreasing recovery expenses that are typically higher in judicial resolution cases.

NEGATIVE (-)

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

If the Covid-19 pandemic lasts longer than expected, the supportive measures taken by the Italian government may prove insufficient. 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 both our updated view on recovery prospects in Italy and the current performance of the transaction. The Class A rating scenario incorporated a gross recovery rate of 32.2% over a remaining weighted average life of 5.8 years. Gross recovery rates of 49.6% and 7.1% were assumed for the secured and unsecured portfolios, respectively.

Scope captured idiosyncratic risk by applying a rating-conditional recovery rate haircut to the 10 largest borrowers of 6.7% in the Class A recovery rate scenario.

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 the Class A notes change compared to the assigned rating in the event of a:

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

Rating driver references

1. Confidential transaction reports
2. Confidential documents of the issuer, arranger and originators
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 9 September 2020 and its ‘Methodology for Counterparty Risk in Structured Finance’ published on 8 July 2020. All documents are available on https://www.scoperatings.com/#!methodology/list.
The model/s used for this rating 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 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: Thomas Miller-Jones, Associate Director
Person responsible for approval of the rating: David Bergman, Managing Director
The rating was first released by Scope on 7 November 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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