Rating action

The transaction comprises the following instruments:

Class A Asset-Backed Floating Rate Notes due 2037 (ISIN IT0005340465): EUR 120.9m: downgraded to BB_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 2021.

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 2020 collection period, aggregate gross collections were EUR 64.8m versus original business plan expectations of EUR 97.5m. As per the latest interest payment date on 25 January 2021, a mezzanine interest subordination event has occurred as the cumulative collections ratio is below 90%.

67.5% of gross collections (EUR 43.7m) come from open debtors (i.e. debtors for which the recovery process is still ongoing). Total available gross collections are split between judicial proceeds (72.4%), notesales proceeds (15.5%), DPO proceeds (8.0%) and other types of collection (4.1%).

125 borrowers are considered closed debtors. They represent an aggregate gross book value of EUR 57.2m. Gross collections linked to closed debtors are EUR 21.1m. The net profitability ratio for closed positions, at 97.8%, is slightly underperforming the level in the initial business plan. Gross collections from closed debtors are split between judicial proceeds (43.9%), notesales proceeds (34.8%), DPO proceeds (18.3%), and other types of collection (3.0%).

29.2% 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 79.7% from 75.6%.

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)¹: A cash reserve protects the liquidity of senior noteholders, covering senior fees and interest on class A notes. It currently stands at EUR 5.3m (4.4% of class A notes’ principal amount after the January 2021 payment date).

Location (positive)³: 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. However, Scope notes that since the closing date, collateral assets have been sold at a higher discount than expected for properties located in such regions.

Cumulative collections (negative)¹: Observed cumulative net collections are 69.4% of the original business plan expectations through 31 December 2020, i.e. five collection periods since closing. Consequently, a mezzanine interest subordination event has occurred as at the last payment date.

Closed debtors’ profitability (negative)¹: The net profitability ratio for closed positions, at 97.8%, is slightly underperforming the level in the initial business plan. Actual gross collections linked to closed debtors are also lower than Scope’s expectations at closing for the borrowers in question. However, the net present value cumulative profitability ratio is at 103.6%, which is above the 95% threshold for an underperformance event.

Italian economy (negative)²: The Italian economy faced a deep recession in 2020 fuelled by the Covid-19 pandemic and is now relying on public investment to revive longer-term growth. Despite governmental support measures, increased collateral liquidity risk and weakened borrower liquidity positions negatively affect the recovery prospects.

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.

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 BB rating scenario incorporated a gross recovery rate of 31.4% over a weighted average life of 5.2 years. A baseline (B rating category) recovery rate of 33.4% was considered over a weighted average life of 5.0 years.

By portfolio segment, Scope assumed BB gross recovery rates of 49.8% and 9.0% for the secured and unsecured portfolios, respectively. Scope assumed B gross recovery rates of 52.9% and 9.5% 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 5.0%, for B and BB 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 would change compared to the assigned rating in the event of:

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

Rating driver references
1. Transaction documents and reporting (confidential)
2. Scope research
3. Updated loan-by-loan data tape of the securitised pool (confidential)

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

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ 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 Credit Rating, (Non-Performing Loan ABS Rating Methodology, published on 9 September 2020; Methodology for Counterparty Risk in Structured Finance, published on 8 July 2020; General Structured Finance Rating Methodology, published on 14 December 2020), are available on https://www.scoperatings.com/#!methodology/list.
The model used for this Credit Rating is (Scope Cash Flow SF EL Model Version 1.1), available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Ratings’ definitions of default and Credit 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 factors) are incorporated into the Credit 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/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings has received a third-party asset due diligence assessment/asset audit at closing. The external due diligence assessment/asset audit was considered when preparing the Credit Rating and it has no impact on the Credit Rating.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and the principal grounds on which the Credit Rating is based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
The Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Benoit Vasseur, Executive Director
Person responsible for approval of the Credit Rating: David Bergman, Managing Director
The Credit Rating was first released by Scope Ratings on 26 July 2018. The Credit Rating was last updated on 20 May 2020.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures 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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