Rating action

The transaction comprises the following instruments:

Class A (ISIN IT0005357360), EUR 262.1m outstanding: downgraded to BB-_SF from BB+_SF

Class B (ISIN IT0005357386), EUR 70.0m outstanding: not rated

Class J (ISIN IT0005357394), EUR 95.0m outstanding: not rated

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

Transaction overview

Belvedere SPV S.r.l. is a static cash securitisation of secured and unsecured non-performing loans (NPLs) extended to companies and individuals in Italy with a gross book value (GBV) of EUR 2,350m (EUR 2,545m as of closing). The portfolio is serviced by Bayview Italia S.r.l. (BVI) and Prelios Credit Servicing S.p.A. (Prelios). Each servicer manages their own sub-portfolio and has an independent business plan. The transaction closed on 21 December 2018 and has a final maturity of December 2038.

Through the 30 May 2021 collection period aggregate gross collections were EUR 111.0m, which represents 43.1% of the original business plans’ expectations of EUR 257.3m. The composition of gross collections consists of the following: judicial (79.6%), DPO (13.1%), note sale (3.2%) and other collection types.

Closed borrowers (421) account for 19.6% (EUR 21.7m) of gross collections and 3.6% of the portfolio’s GBV at closing. The closed debtors’ gross collections stem from judicial (59.5%), DPO (24.3%), note sales (14.9%) and other (1.6%) collection types.

Recovery costs are approximately 10.2% of gross collections to date, which above our expectation of 9%.

BVI’s reported cumulative collection ratio (net of recovery costs) is 53.2% and its present value cumulative profitability ratio is 95.7%.

Prelios’ reported cumulative collection ratio (net of recovery costs) is 25.0% and its present value cumulative profitability ratio is 103.8%.

Only 18.1% 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. In particular, the downgrade is mainly driven by significantly weaker than expected profitability on closed positions relative to Scope´s baseline assumptions.

All counterparties continue to support the ratings. 

Key rating drivers

Class A turbo amortisation (positive). Class A principal is always senior to class B interest in the priority of payments, which is not a typical feature of most Italian NPL transactions rated by Scope. Relative to peer transactions, there is significant upside to class A noteholders in a scenario of accelerated collections.¹

Improving collection pace (positive). The year-over-year cumulative collection ratio has improved by 10 percentage points year-over-year relative to Scope’s baseline scenario that was assumed at the previous rating action.¹

Profitability trend (negative). Profitability on closed borrowers has trended negatively year-over-year relative to Scope’s assumptions and the business plans’ expectations. This is notable given the 2.5x year-over-year increase in closed borrower count (421 from 172) and GBV (EUR 89.7 from EUR 35.8). Both secured and unsecured segments have experienced drops in profitability.¹

Recovery costs (negative). Recovery costs are approximately 10.2% of gross collections to date, which above Scope’s expectation of roughly 9%.¹

Weak liquidity (negative). The cash reserve covers less than two payment dates worth of senior fees and costs.¹

Rating-change drivers

Positive. Improved profitability and faster than expected collections from out-of-court resolution strategies could positively impact the rating.

Negative. Collection strategies that further sacrifice profitability and/or delay the collections may 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 our updated market value decline assumptions and the current performance of the transaction. Scope assumed a 15.2% gross recovery rate on the remaining GBV over a weighted average life of 4.2 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, three notch decrease;
   
• one-year recovery lag increase, one notch decrease.

Rating driver references
1.Transaction documents and reporting (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, 17 December 2021), 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/internal analysis 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 Ratings: Antonio Casado, Executive Director
The Credit Rating was first released by Scope Ratings on 21 December 2018. The Credit Rating was last updated on 23 December 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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