The rating actions are as follows:

Class A (ISIN IT0005428245), EUR 520,000,000: assigned a final rating of BBB_SF
Class B (ISIN IT0005428286), EUR 41,000,000: assigned a final rating of CC_SF
Class J (ISIN IT0005428294), EUR 24,000,000: not rated

Transaction overview

The transaction is a static cash securitisation of an Italian NPL portfolio worth around EUR 2,347m by gross-book value (’GBV’). The portfolio was originated by 88 cooperative banks (‘BCCs’) belonging to the Iccrea Cooperative Banking Group (out of 132 banks), Banca Ifis S.p.A. and Banca Popolare Valconca S.p.A. (see ‘Appendix I’ for the complete list of originators). The portfolio will be serviced by doValue S.p.A. as special servicer and Italfondiario S.p.A. as master servicer.

The pool is composed of senior secured (59.8%), unsecured (32.7%) and junior secured loans (7.6%). Borrowers are mainly corporates (83.4%). Secured loans are backed by residential and non-residential properties (31.6% and 68.4% of the total first-lien property value, respectively) that are rather concentrated in the north (42.8%) and the center of Italy (40.6%). The issuer acquired the portfolio at the transfer date of 18 November 2020. Asset information reflects aggregation by loans and Scope’s pool adjustments related to collections and sold properties since the 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. Class A will pay a floating rate indexed to six-month Euribor, plus a margin of 0.25%, whilst class B will pay a floating rate indexed to six-month Euribor, plus a margin of 8.0%. Class J principal and interest are subordinated to the repayment of the senior and mezzanine notes.

Rating rationale

The ratings are primarily driven by the expected recovery amounts and timing of collections from the NPL portfolio. The recovery amounts and timing assumptions consider the portfolio’s characteristics as well as Scope’s economic outlook for Italy and Scope’s assessment of the special servicer’s capabilities. The ratings are supported by the structural protection provided to the notes, the absence of equity leakage provisions, the liquidity protection and the interest rate hedging agreement.

The ratings also address exposures to the key transaction counterparties. In order to assess the issuer’s exposure to credit counterparty risks Scope considered counterparty substitution provisions in the transaction, counterparty ratings from Scope, when available, or public ratings.

Key rating drivers

Borrowers’ granularity (positive). The concentration in the portfolio is below market average considering peer transactions rated by Scope. The 10 largest borrower exposures account for 6.1% of portfolio GBV.¹

Diversified geographical distribution of the collateral and multi-originator nature of the transaction (positive). The portfolio collateral is relatively highly diversified by geography. 83.4% of the first-lien portfolio is distributed among Italy’s northern and central regions (42.8% and 40.6%, respectively), which usually benefit from shorter court procedures than sourthern regions. The multi-originator nature of the transaction helps mitigate concentration risk in terms of the properties’ locations and borrowers’ exposures.¹

High share of drive-by valuations (positive). Most of the portfolio’s collateral appraisals are either full or drive-by valuations (57.4%), which are generally more accurate than desktop or CTU valuations.¹

Property type (negative). The residential component of the portfolio (31.6% of total properties’ valuation) is relatively low compared to peer transactions rated by Scope. The share of land and properties classified as ‘other’ is high compared to peer transactions (14.2% and 12.2% of first-lien property valuations, respectively) which may have high price volatility upon liquidation.¹

Material portion of legal proceedings in initial stages (negative). Scope expects a weighted average recovery timing of 7.7 years, which is long compared to peer transactions rated by Scope. Around 51.2% of the secured loans are in the initial legal phase or are yet to have proceedings initiated. This results in a longer expected time for collections than for loans in more advanced phases.¹

Seasoned unsecured and junior secured portfolio (negative). The weighted average time since default is approximately 4.5 years for the unsecured and junior secured portfolio. Most unsecured recoveries are realised in the first years after a default according to historical data.^1,2

Rating-change drivers

Rapid economic growth following the pandemic crisis (upside). A scenario of rapid economic recovery would improve liquidity and affordability conditions and would prevent a sharp deterioration of collateral values. This could positively affect the rating, enhancing servicer performance on collection volumes.

Servicer outperformance on recovery timing (upside). The pandemic led to a slowdown of the courts’ activity. If courts advance on legal proceedings backlogs faster than expected, an outperformance on recovery timing could occur. This could positively impact the rating.

Long lasting pandemic crisis (downside). Recovery rates are generally highly dependent on the macroeconomic climate. Scope baseline scenario³ foresees a 9% gross domestic product contraction in 2020 before rebounding with growth of 6.1% in 2021. If current crisis will last beyond Scope baseline scenario, liquidity conditions could deteriorate, reducing servicer performance on collection volumes. This could negatively impact the rating.

Servicer underperformance on recovery timing (downside). Servicer performance below Scope’s base case collection timing assumptions could negatively impact the rating.

Quantitative analysis and key assumptions

Scope analysed cash flows, reflecting the transaction’s structural features, to calculate each tranche’s expected loss and weighted average life. 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 performed a specific analysis for recoveries, using different approaches for secured and unsecured exposures. For senior secured exposures, collections were mainly based on the most recent property appraisal values, which were stressed to account for, appraisal type, 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 the cut-off date. For unsecured and junior secured exposures, Scope used historical line-by-line market-wide recovery data on defaulted loans between 2000 and 2019 and considered the special servicer’s capabilities when calibrating lifetime recoveries. Scope considered that unsecured and junior secured borrowers were classified as defaulted for a weighted average of 4.5 years as of the cut-off date. Scope also analysed historical data provided by the servicer. Scope accounted for the current macro-economic scenario, taking a forward-looking view on the macro-economic developments.

For the class A notes analysis, Scope assumed a gross recovery rate of 30.8% over a weighted average life of 7.7 years. By segment, Scope assumed a gross recovery rate of 43.8% for the senior secured portfolio and 11.6% for the unsecured and junior secured portfolio. Scope has applied an average combined security value haircut of 47.4%, which consists of i) an average fire-sale discount (including valuation type haircuts) of 38.6% to security valuations, reflecting liquidity or marketability risks; and ii) property price decline stresses (14.1% on average), reflecting Scope’s view of downside market volatility risk. To calculate the security value haircut rate, Scope has removed the collateral positions sold between the cut-off date and the issue date.

For the analysis of the class B notes, Scope assumed a gross recovery rate of 35.9% over a weighted average life of 7.1 years. By portfolio segment, Scope has assumed a gross recovery rate of 50.7% for the senior secured portfolio and 13.9% for the unsecured and junior secured portfolio.

In its analysis, Scope considered the actual servicer fees structure and assumed legal expenses to be around 9% of lifetime gross collections. Scope captured single asset exposure risks by applying a recovery rate haircut of 10% to the 10 largest borrowers in the class A analysis.

Sensitivity analysis

Scope tested the resilience of the ratings against deviations in the main input parameters: the portfolio recovery-rate and the portfolio recovery timing. 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 results for class A change compared to the assigned credit rating in the event of:

• a decrease in secured and unsecured recovery rates by 10%, minus three notches.
• an increase in the recovery lag by one year, minus one notch.

The following shows how the results for class B change compared to the assigned credit rating in the event of:

• a decrease in secured and unsecured recovery rates by 10%, minus one notch.
• an increase in the recovery lag by one year, zero notches.

Rating driver references
1 Loan-by-loan data tape of the securitised pool (confidential)
2 Servicer historical data (confidential)
3 Italy’s debt sustainability remains a challenge, despite low interest costs and pro-growth agenda

Appendix I
Originators
Iccrea BancaImpresa S.p.A.
Banca per lo Sviluppo della Cooperazione di Credito S.p.A.
Banca Ifis S.p.A.
Banca Popolare Valconca S.p.A.
Credito Cooperativo Mediocrati - Società Cooperativa
Banca di Credito Cooperativo di Buccino e dei Comuni Cilentani - Società Cooperativa
Credito Cooperativo Romagnolo - BCC di Cesena e Gatteo - Società Cooperativa
Emil Banca - Credito Cooperativo - Società Cooperativa
Banca Centro - Credito Cooperativo Toscana - Umbria Società Cooperativa
Banca Cremasca e Mantovana - Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo dell'Adriatico Teramano - Società Cooperativa
Banca del Catanzarese - Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo Agrigentino Società Cooperativa
Iccrea Banca S.p.A. - Istituto Centrale del Credito Cooperativo
ViVal Banca - Banca di Credito Cooperativo di Montecatini Terme, Bientina e San Pietro in Vincio Società Cooperativa
Banca di Ancona e Falconara Marittima Credito Cooperativo - Società Cooperativa
Banca del Cilento di Sassano e Vallo di Diano e della Lucania - Credito Cooperativo - Società Cooperativa per Azioni
Banca di Credito Cooperativo della Valle del Trigno - Società Cooperativa
Valpolicella Benaco Banca Credito Cooperativo (Verona) Società Cooperativa
Banca Centropadana Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo di Roma Società Cooperativa
Banca di Credito Cooperativo Brianza e Laghi - Società Cooperativa
Banca di Credito Cooperativo di Altofonte e Caccamo - Società Cooperativa
Banca di Anghiari e Stia - Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo Pordenonese e Monsile - Società Cooperativa
Banca di Pescia e Cascina - Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo Campania Centro - La Cassa Rurale ed Artigiana Società Cooperativa
Banca di Credito Cooperativo di Bellegra Società Cooperativa
Cassa Rurale ed Artigiana di Binasco - Credito Cooperativo Società Cooperativa
Banca delle Terre Venete Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo di Busto Garolfo e Buguggiate - Società Cooperativa
Banca di Credito Cooperativo di Buonabitacolo - Società Cooperativa
Cassa Rurale ed Artigiana di Cantù Banca di Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo di Capaccio Paestum e Serino - Società Cooperativa
Banca di Credito Cooperativo Abruzzese - Cappelle sul Tavo Società Cooperativa
Banca di Credito Cooperativo di Carate Brianza - Società Cooperativa
Credito Cooperativo di Caravaggio Adda e Cremasco - Cassa Rurale - Società Cooperativa
Banca di Credito Cooperativo di Venezia, Padova e Rovigo - Banca Annia Società Cooperativa
Banca di Credito Cooperativo di Milano - Società Cooperativa
Credito Padano Banca di Credito Cooperativo Società Cooperativa
Credito Cooperativo Valdarno Fiorentino Banca di Cascia - Società Cooperativa
Banca di Credito Cooperativo di Castiglione Messer Raimondo e Pianella S.C.P.A.R.L.
Banca del Piceno Credito Cooperativo - Società Cooperativa
Cereabanca 1897 Credito Cooperativo - Società Cooperativa
Banca Valdichiana - Credito Cooperativo di Chiusi e Montepulciano - Società Cooperativa
Banca di Credito Cooperativo di Cittanova - Società Cooperativa
Banca di Credito Cooperativo dell'Oglio e del Serio Società Cooperativa
Banca della Valsassina Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo di Fano - Società Cooperativa
Banca di Credito Cooperativo di Alba, Langhe, Roero e del Canavese Società Cooperativa
Credito Cooperativo Ravennate e Imolese Società Cooperativa
Banca di Filottrano - Credito Cooperativo di Filottrano e di Camerano - Società Cooperativa
Banca di Pisa e Fornacette Credito Cooperativo S.C.p.A.
BCC Basilicata - Credito Cooperativo di Laurenzana e Comuni Lucani - Società Cooperativa
Banca di Credito Cooperativo Valle del Torto - Società Cooperativa
Banca di Credito Cooperativo di Canosa - Loconia Società Cooperativa
Chiantibanca - Credito Cooperativo Società Cooperativa
BCC del Garda Banca di Credito Cooperativo Colli Morenici del Garda Società Cooperativa
Banca di Credito Cooperativo di Marina di Ginosa - Società Cooperativa
Banca di Credito Cooperativo del Metauro - Società Cooperativa
Banca di Credito Cooperativo di Ostuni Società Cooperativa
Banca di Credito Cooperativo di Pachino Società Cooperativa
Credito Cooperativo Cassa Rurale ed Artigiana di Paliano Società Cooperativa
Banca Versilia Lunigiana e Garfagnana - Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo di Pergola e Corinaldo Società Cooperativa
Banca di Credito Cooperativo di Pontassieve Società Cooperativa
Centromarca Banca - Credito Cooperativo di Treviso e Venezia, Società Cooperativa per Azioni
Banca di Credito Cooperativo di Recanati e Colmurano - Società Cooperativa
Banca di Ripatransone e del Fermano - Credito Cooperativo - Società Cooperativa
Banca di Credito Cooperativo della Provincia Romana
Banca San Giorgio Quinto Valle Agno - Credito Cooperativo - Società Cooperativa
Banca del Valdarno - Credito Cooperativo - Società Cooperativa
Banca di Pesaro Credito Cooperativo - Società Cooperativa
Terre Etrusche e di Maremma Credito Cooperativo Società Cooperativa
Banca di Credito Cooperativo Bergamo e Valli - Società Cooperativa
Banca di Credito Cooperativo di Spinazzola - Società Cooperativa
Banca di Credito Cooperativo di Staranzano e Villesse Società Cooperativa
Cassa Rurale - Banca di Credito Cooperativo di Treviglio - Società Cooperativa
Banca Alta Toscana Credito Cooperativo - Società Cooperativa
Banca Don Rizzo - Credito Cooperativo della Sicilia Occidentale - Società Cooperativa
Banca di Credito Cooperativo dei Colli Albani Società Cooperativa
Banca di Credito Cooperativo "G. Toniolo" di San Cataldo (Caltanissetta) Società Cooperativa
Banca di Credito Cooperativo Mutuo Soccorso Gangi Società Cooperativa
Banca San Francesco Credito Cooperativo - Società Cooperativa - Gruppo Bancario Cooperativo Iccrea
Banca di Credito Cooperativo San Giuseppe delle Madonie
Banca di Credito Cooperativo San Michele di Caltanissetta e Pietraperzia Società Cooperativa
Banca di Credito Cooperativo Terra di Lavoro "S. Vincenzo de' Paoli" - Società Cooperativa per Azioni
RivieraBanca Credito Cooperativo di Rimini e Gradara Società Cooperativa
Banca di Credito Cooperativo di San Marco dei Cavoti e Del Sannio - Calvi Società Cooperativa
Banca Mediocredito del Friuli Venezia Giulia S.p.A.

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 with the use of Scope Cash Flow SF/EL Model Version 1.1 incorporating default and recovery rate assumptions over the portfolio’s amortisation period, taking into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

Methodology
The methodologies used for this rating are the Non-Performing Loan ABS Rating Methodology (9 September 2020) and the Methodology for Counterparty Risk in Structured Finance (8 July 2020), available on www.scoperatings.com.
The model used for this rating is Cash Flow Model v1.1. 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.
Scope analysts are available to discuss all the details of the rating analysis and the risks to which this transaction is exposed.

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, agents of the issuer, 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. 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, 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 Leonardo Scavo, Senior Analyst.
Person responsible for approval of the ratings: David Bergman, Managing Director.
The rating was first released by Scope on 30 November 2020.

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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