Rating action

The transaction is comprised of the following instruments:

Class A (ISIN IT0005395402), EUR 108.8m outstanding: affirmed at BBB_SF

Class B (ISIN IT0005395410), EUR 37.0m outstanding: not rated

Class J (ISIN IT0005395428), EUR 8.0m outstanding: not rated

Scope’s review was based on available investor, payment, and servicer reporting through the June 2021 collection period.

Transaction overview

The transaction is a static cash securitisation of an Italian NPL portfolio worth EUR 1,256m by gross-book value (GBV) at closing. 45.7% of the closing portfolio GBV was comprised of fully secured loans. The portfolio was originated by 53 different banks (original lenders) and is serviced by Guber Banca S.p.A. (Guber). The transaction closed on 16 December 2019.

Aggregate gross collections amount to EUR 80.0m, which represents 29.7% of the original business plan’s lifetime collections expectation of EUR 269.8m. The composition of gross collections consists of judicial (62.4%), DPO (16.3%), other (14.0%), note sale (5.5%) and indemnity (1.8%) collection types.

Closed borrowers (1,625) account for 56.7% (EUR 45.4m) of gross collections and 17.6% of the portfolio’s GBV at closing, EUR 7.6m of which is attributed to collections prior to the transaction closing. Post-closing collections from closed borrowers are split across the following collection types: judicial (52.1%), DPO (23.9%), note sale (12.0%), other (10.9%) and indemnities (1.0%).

The transaction’s cumulative collection ratio and NPV profitability ratio stand at 123.6% and 108.7%, respectively. Class B interest is subordinated to class A principal if either metric drops below 100.0%.

31.2% of class A’s notional balance has amortised since closing.

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, macro-economic factors, and peer analysis. Scope expects B rating scenario lifetime collections (including realised gross collections) to be 8.3% lower compared to the amount forecasted at closing, which partly reflects lower-than-expected observed profitability relative to Scope’s expectation at closing.

Profitability on all closed positions is 77.8% of Scope’s B rating scenario assumption from closing. Profitability on closed secured and unsecured positions in the same B rating scenario is 72.9% and 94.8%, respectively.

Gross cumulative collections are 227.3% of Scope’s B rating scenario, indicating a faster than expected collection pace. While this is a positive metric, the strong collection pace may be coming at the expense of profitability relative to Scope’s expectation.

Recovery costs are approximately 11.4% of gross collections, which is above our expectation of roughly 9.0%.

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

Key rating drivers

Collection pace (positive): Gross cumulative collections are 227.3% of Scope’s B rating scenario, indicating a faster than expected collection pace.^1,2

Remaining portfolio (positive): Scope’s future expected collections from the current portfolio continue to support the outstanding class A rating. The portfolio at closing was expected to yield robust expected collections relative to the class A notional balance; however, this buffer has been reduced given Scope’s downwardly revised assumptions.^1,2

Secured borrower profitability (negative): Profitability on closed secured borrowers is only 72.9% of Scope’s B rating scenario.^1,2

Recovery costs (negative): Recovery expenses are approximately 11.4% of gross collections, which continues to exceed Scope’s expectation of 9.0%.^1,2

Rating-change drivers

Positive: Improved profitability on secured collections coupled with a faster-than-expected collection pace could positively impact the rating.

Positive: A rapid economic recovery would improve liquidity and affordability conditions and could potentially prevent a sharp deterioration of collateral values.

Negative: Continued underperformance on secured positions relative to Scope’s expectation may negatively impact the rating, as there is limited decreased expectations

Negative: Generally, recovery rates are highly dependent on the macroeconomic climate. A prolonged pandemic crisis coupled with decreased government financial support could reduce expected collections.

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 transaction’s performance, macro-economic factors, and peer analysis. Scope assumed a 16.7% gross recovery rate over a weighted average life of 5.6 years for the class A 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, one notch decrease;
   
• one-year recovery lag, zero notches.

* A typographical error was corrected on 20 December 2021.

Rating driver references
1. Transaction documents and reporting (Confidential)
2. Scope internal sources (Confidential)

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 Rating: 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: Thomas Miller-Jones, Associate Director
Person responsible for approval of the Credit Rating: Antonio Casado, Executive 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.

Conditions of use / exclusion of liability
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