Rating action

The transaction comprises the following rated instruments:

Class A1 (ISIN: IT0005391096), EUR 0.0 outstanding: withdrawn due to full repayment

Class A2 (ISIN: IT0005391146), EUR 138.3m outstanding: affirmed at AAA_SF

Class J (Floating Rate Notes), EUR 229.4m outstanding: not rated

Scope’s review was based on available transaction reporting through the October 2021 payment date.

Transaction overview

Credico Finance 18 S.r.l. is a static cash securitisation of a EUR 368.8m portfolio (EUR 519.4m at closing) of secured and unsecured loans extended to Italian small- and medium-sized enterprises (SMEs). The loans were originated by 14 Italian cooperative banks (BCCs) who also service their respective loans in the securitised portfolio. The transaction closed on 5 December 2019 and its final legal maturity is 12 April 2057.

The 14 BCCs are: EMIL Banca Credito Cooperativo - Società Cooperativa, BCC Umbria Credito Cooperativo Società Cooperativa, Banca della Marca Credito Cooperativo – Società Cooperativa, Banca di Credito Cooperativo Abruzzese - Cappelle sul Tavo s.c.p.a. a Mutualità Prevalente, Banca Alpi Marittime Credito Cooperativo Carrù Società Cooperativa per Azioni, Banca del Piceno Credito Cooperativo, Banca di Credito Cooperativo di Alba, Langhe, Roero e del Canavese – Società Cooperativa, Credito Cooperativo Ravennate, Forlivese e Imolese - Società Cooperativa, Banca di Credito Cooperativo di Ostra e Morro d’Alba - Società Cooperativa, Banca Patavina Credito Cooperativo di Sant’Elena e Piove di Sacco - Società Cooperativa, Banca di Credito Cooperativo di Pontassieve – Società Cooperativa, Banca di Credito Cooperativo di Recanati e Colmurano – Società Cooperativa, Banca di Credito Cooperativo dei Colli Albani - Società Cooperativa, and Banca Mediocredito del Friuli Venezia Giulia S.p.A.

Rating rationale

The transaction has benefitted from better-than-expected performance. No defaults have been reported and total repurchases amount to 1.4% of the closing portfolio balance. 90+ day delinquencies are currently 1.3% of the outstanding portfolio balance, compared to 1.0% at the October 2020 payment date.

Class A1 notes have been fully repaid.

Class A2 benefits from increased credit enhancement of (65.5% vs. 46.4% at closing), which comes from subordination and the cash reserve. The non-amortising cash reserve is fully funded and provides robust coverage of senior costs and interest. Excess spread is approximately 0.2% (assuming 1.0% servicing fees), which is slightly lower than at closing (0.4%).

Transaction counterparties continue to support the rating. ICCREA Banca S.p.A. (Iccrea) serves as an intermediary bank between the BCCs and the issuer account bank that sits with BNP Paribas Securities Services (BNP Paribas). Iccrea is effectively the parent of the 14 cooperative banks, and Scope considers the credit quality of the 14 banks to be in line with that of Iccrea. Iccrea is publicly rated and is directly supervised by the European Central Bank (ECB). Frequent cash sweeps and servicer diversification mitigate commingling risk and potential operational disruptions. Zenith Service S.p.A. provides further comfort as the designated back-up servicer. Replacement triggers are in place should the credit-quality of BNP Paribas fall below BBB. Scope’s credit analysis of BNP Paribas conforms with the assigned rating.

Key rating drivers

Credit enhancement (positive): Class A2 benefits from 65.5% of total credit enhancement.¹

Liquidity protection (positive): The non-amortising cash reserve is fully funded and provides robust coverage of senior costs and interest.¹

Parent bank (positive): Iccrea is an experienced, systemically important bank supervised by the ECB. It is closely integrated with the cooperative banks, providing operational support and cross financial guarantees to ensure liquidity and funding.

Fixed-floating rate mismatch (negative)¹. At closing, approximately 4.7% of the portfolio pays a fixed rate while the notes are indexed to three-month Euribor. A spike in three-month Euribor would reduce available excess spread.

Rating-change drivers

Downside rating-change drivers

Worse-than-expected asset performance, exemplified by a higher-than-expected defaults and/or lower-than-expected recovery upon asset default would negatively impact the rating.

Quantitative analysis and assumptions

No updated cash flow analysis was necessary given the robust credit enhancement level of 65.5% for the Class A2 notes, which is up from 46.4% at closing. Scope performed a cash flow analysis at closing considering the portfolio’s characteristics and the transaction’s main structural features.

Scope’s closing cash flow analysis of the highly granular portfolio projects the cash flows from the portfolio during the amortisation period, incorporating the probability distribution of the portfolio’s default rate. Scope assumes this distribution to follow an inverse Gaussian distribution in order to calculate the expected loss of each rated tranche. The analysis also provided the expected weighted average life for the notes. Scope took into account asset and liability amortisation and the evolution of the portfolio’s composition.

Scope assumed a mean default rate of 17.0% and a coefficient of variation of 40.0% for the secured portion of the portfolio, which has an expected weighted average life of 6.7 years. Scope considered a base case recovery rate of 45.0% and a rating-conditional AAA recovery rate of 20.3%. A 3.2% weighted average interest rate was assumed for the fixed rate portion of the secured portfolio. An all-in weighted average margin of 1.85% was assumed for the floating rate portion of the secured portfolio.

Scoped assumed a mean default rate of 7.0% and a coefficient of variation of 60.0% for the unsecured portion of the portfolio, which has an expected weighted average life of 3.7 years. Scope considered a base case recovery rate of 25.0% and a rating-conditional AAA recovery rate of 15.0%. A 2.7% weighted average interest rate was assumed for the fixed rate portion of the unsecured portfolio. An all-in weighted average margin of 1.8% was assumed for the floating rate portion of the unsecured portfolio.

Sensitivity analysis

Scope tested the resilience of the ratings at closing against deviations in the main input parameters: the portfolio’s mean default rate and the portfolio recovery rate. 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 the rated instruments would change compared to the assigned rating when the portfolio’s mean default rate increases by 50%, or the portfolio’s expected recovery rate decreases by 50%, respectively:

• Class A2: sensitivity to default rate, zero notches; sensitivity to recovery rate, zero notches.

Rating driver references
1. Transaction performance reports and documents

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodologies used for this Credit Rating, (General Structured Finance Rating Methodology, 14 December 2020; SME ABS Rating Methodology, 13 May 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021) are available on 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 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 received a third-party asset due diligence assessment/asset audit at closing of the transaction. 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
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 final Credit Rating was first released by Scope Ratings on 5 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
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