Rating action

The transaction comprises the following instruments:

Class A (ISIN IT0005395352), EUR 250.1m outstanding: downgraded to BBB-_SF from BBB_SF

Class B (ISIN IT0005395360), EUR 25.0m outstanding: not rated

Class J (ISIN IT0005428294), EUR 13.5m outstanding: not rated

Scope’s review was based on available payment information, servicer and investor reporting as of July 2021.

Transaction overview

Iseo SPV S.r.l. is a static cash securitisation of a EUR 857m portfolio (at closing) of Italian non-performing loans originated by Unione di Banche Italiane S.p.A and serviced by doValue S.p.A. The transaction was closed on 16 December 2020.

As of 30 June 2021, aggregate gross collections were EUR 98.6m, which represents 82.5% of the original business plan expectations of EUR 119.5m. Around 86.4% of gross collections (EUR 85.2m) come from open debtors (i.e.: debtors for which the recovery process is still ongoing). Total available gross collections are split between judicial proceeds (64.8%) discounted pay-off (‘DPO’) proceeds (33.1%), credit sale proceeds (1.9%) and other types of collections (0.2%).

In terms of net collections (gross collections reduced by the amount of recovery expenses), aggregate net collections amount to EUR 94.0m, which represents 79.8% of the original net expectations.

Around 13.6% of gross collections (EUR 13.4m) come from closed debtors, whose GBV represents around 2.9% of the transaction’s initial GBV. Gross profitability on closed debtors is below servicer’s expectation in the initial business plan, standing at 86.5%. Gross collections from closed debtors are split between judicial proceeds (57.7%), DPO proceeds (32.5%), credit sales proceeds and other types of collections (9.8%).

Interests on class B are subordinated to payment of class A principal if the net cumulative collection ratio falls below 90% of the servicers’ business plan target or the NPV profitability ratio falls below 90%. As per last investor report dated July 2021, a class B interest subordination occurred as the net cumulative collection ratio and the NPV profitability ratio stands at 79.8% and 113.1%, respectively. Accrued and unpaid interests on class B notes amount to EUR 2.3m and this amount will be paid senior to class A principal if the interest subordination event is cured (i.e., when the net cumulative collection ratio returns above 100%).

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 the transaction’s performance and the current and developing macro-economic factors. Scope also compared the transaction’s performance to its own recovery assumptions, considering updated views on asset resolution timing, recovery estimates and macro-economic fundamentals, all developed through transaction-specific observations and benchmarking.

All counterparties continue to support the ratings, as there have not been material changes on counterparty risk since closing.

Key rating drivers

Cumulative collections compared to Scope’s expectations (positive)¹: Observed cumulative net collections have been higher than Scope original net B rating assumptions.

Senior notes’ liquidity protection (positive)¹: A cash reserve provides liquidity protection to senior noteholders, covering senior fees and interest on class A notes. It currently stands at EUR 10.7m (4.0% of class A notes’ principal amount as of the January 2021 payment date).

Downward revision of the business plan (negative)¹: The servicer has reviewed the transaction’s original business plan. Overall, the outstanding original business plan projections have been reviewed downward by ca. 9.5%.

Higher-than-expected legal expenses (negative)¹: As of June 2021, cumulative legal expenses are 168% higher than the amount projected by the servicer in the initial business plan.

Closed debtors’ profitability by Scope (negative)¹: Profitability on closed borrowers (calculated as the ratio between actual collections and Scope original lifetime projections under the B rating assumptions) stands at 84.5%.

Italian economy (negative)²: The Italian economy faced a weak economic growth rate in the first half of 2021 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.

Rating-change drivers

Positive. Consistent servicer outperformance on closed borrowers’ profitability, could positively impact the ratings.

Negative. If servicer performance falls short of Scope’s collection amounts and timing assumptions, this could negatively impact the ratings.

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. Scope assumed a 52.1% gross recovery rate over a weighted average life of 4.7 years for class A analysis, and a 58.1% gross recovery rate over a weighted average life of 4.3 years for the base case analysis.

Sensitivity analysis

Scope tested the resilience of the ratings 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 change compared to the assigned rating in the event of:

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

Rating driver references
1. Transaction documents and reporting (confidential)
2. Scope research

Stress testing
Stress testing was performed by applying Credit-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 the relevant asset assumptions, 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, 6 August 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021; General Structured Finance Rating Methodology, 14 December 2020), are available on https://www.scoperatings.com/#!methodology/list.
The model used for this Credit Rating is (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 Ratings: public domain, the Rated Entity, 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 this 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 are based. Following that review, the Credit 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. The Credit Rating is UK-endorsed.
Lead analyst: Leonardo Scavo, Senior Analyst
Person responsible for approval of the Credit Rating: David Bergman, Managing Director
The Credit Rating was first released by Scope Ratings on 16 December 2019.

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. A member of the Board of Trustees of Scope Foundation has a significant relationship with Société Generale SA, a related third party to this transaction. The Scope Foundation is a 20% shareholder of Scope Management SE, the general manager of Scope SE & Co KGaA (“Scope Group”). Scope Foundation has no financial or economic interest in Scope SE & Co KGaA and the main function of the foundation is to preserve the European identity of the shareholder structure of Scope Group.

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.