Scope Ratings completed the monitoring review for Red Sea SPV S.r.l. on 21 May 2020. The review was conducted based on available payment information and investor and servicer reporting as of 30 April 2021 payment date. Credit ratings remain as follows: 

Class A (ISIN IT0005336943), EUR 998,702,981 outstanding amount: BBB-_SF

Class B (ISIN IT0005336950), EUR 152,908,000 outstanding amount: not rated

Class J (ISIN IT0005336968), EUR 50,969,000 outstanding amount: not rated

Red Sea SPV S.r.l. is a static cash securitisation of secured and unsecured non-performing loans extended to companies and individuals in Italy worth EUR 5,097 million by gross book value (GBV). Loans were originated by Banco BPM S.p.A. and Banca Popolare di Milano S.p.A., and are currently serviced by Prelios Credit Servicing S.p.A. The class A was rated on 15 Jun 2018 and the legal maturity is in October 2038. Scope does not rate class B and class J notes.

Scope reviews its ratings on an ongoing basis, and at least once a year. Scope performs monitoring reviews to determine whether outstanding ratings remains 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.

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 on www.scoperatings.com.

Key rating factors

As of 31 March 2021, aggregate gross collections were EUR 830.4m, which represents 99.0% of the original business plan expectations of EUR 839.2m. Around 77% of gross collections (EUR 636m) come from open debtors (i.e.: debtors for which the recovery process is still ongoing). Total available gross collections are split between judicial proceeds (69.2%) discounted pay-off proceeds (20.4%), credit sale proceeds (2.9%) and other types of collection (7.5%).

In terms of net collections (gross collections reduced by the amount of recovery expenses), aggregate net collections amount to EUR 786.1m, which represents 101% of the original net expectations.

Around 23% of gross collections (EUR 193.6m) come from closed debtors, whose GBV represents around 7% of the transaction’s initial GBV. The net profitability on closed debtors (as reported in the servicer report) is in line with the servicers’ expectation, standing at 100%. Gross collections from closed debtors are split between DPO proceeds (55.1%), judicial proceeds (18.1%), credit sale proceeds (11.2%), and other types of collection (15.6%).

Interests on class B are subordinated to payment of class A principal if the net cumulative collection ratio falls below 70% of the servicers’ business plan target or the NPV profitability ratio falls below 70%. This ratio is curable, and once is cured, all accrued and unpaid interest are distributed senior to class A principal payments. As per last investor report dated April 2021, no class B interest subordination occurred as the net cumulative collection ratio and the NPV profitability ratio stands at 101% and 107%, respectively.

All transaction counterparties continue to support the rating.

CREDIT-POSITIVE (+)

Cumulative collections. Observed cumulative net collections are 101% of the original servicer’s business plan expectations as of 31 March 2021, (i.e.: six collection periods since closing). The timing of collections has also outpaced Scope’s expectation at closing.

Closed debtors’ profitability. The net profitability ratio for closed positions, at 100%, is aligned with the level in the initial business plan. Actual gross collections linked to closed debtors are also in line with Scope’s expectations under the class A analysis for the borrowers in question.

Increased credit enhancement. Around 40% 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 75.8% from 67.5%.

CREDIT-NEGATIVE (-)

Italian economy. The Italian economy faces a deep recession fueled by the Covid-19 pandemic. Despite governmental support measures, increased collateral liquidity risk and weakened borrower liquidity positions could negatively affect the recovery prospects.

Business plan review. The servicer is expecting lower recoveries compared to the initial business plan: total collections from the updated business plan are around 7% lower compared to initial projections.

Class B margin seniority. The margin component of class B interest ranks senior to class A principal and will only be deferred if the special servicer does not meet at least 70% of the business plan collections schedule. The level of the trigger is low compared to peer transactions rated by Scope.

The methodologies applicable for the reviewed rating (General Structured Finance Rating Methodology, published on 14 December 2020, Non-Performing Loan ABS Methodology, published on 9 September 2020, Methodology for Counterparty Risk in Structured Finance, published on 8 July 2020) 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: Leonardo Scavo, Senior Analyst

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