Rating action

The transaction comprises the following instruments:

Class A (ISIN IT0005413155), EUR 134.5m outstanding: upgraded to BBB+_SF from BBB_SF

Class B (ISIN IT0005413163), EUR 35.0m outstanding: not rated

Class J (ISINIT0005413189), EUR 3.7m outstanding: not rated

Scope’s review was based on servicer, investor and payment reporting as of the December 2021 payment date.

Transaction overview

Diana SPV S.r.l. is a static cash securitisation of a EUR 999.7m portfolio (at closing) of Italian non-performing loans (NPLs) extended to companies and individuals in Italy. The loans were originated by Banca Popolare di Sondrio S.C.p.A. The portfolio is serviced by Prelios Credit Servicing S.p.A. The transaction closed on 17 June 2020.

After three interest payment dates, the transaction’s collections are above Scope’s expectations for Class A analysis and above the business plan’s original forecasts, both at gross and net levels (i.e., net of recovery expenses).

As of the December 2021 payment date, aggregate gross collections were EUR 116.9m, which represent 158.1% of the original business plan forecast of EUR 74.0m for the same period and 161.9% of Scope projections under the class A analysis. Gross collections stem from the following strategies: judicial (52.9%), DPO (22.4%), note sales (5.1%) and other collection types (19.5%).

Closed borrowers (173) accounted for 27.2% (EUR 31.8m) of gross collections. Closed borrowers represent 7.3% of the portfolio’s GBV at closing. Closed debtors’ gross collections stem from DPO (48.6%), judicial (19.8%), note sales (18.9%) and other (12.7%) collection types.

Recovery costs are approximately 3.2% of gross collections to date, which is below Scope’s expectation under the class A analysis.

No interest subordination event has occurred, since both the cumulative net collections ratio and the cumulative profitability ratio are above the 90% trigger level (173.5% and 104.5%, respectively).

As of the last payment date, 42.8% of class A 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. The upgrade is mainly driven by higher than expected recoveries relative to Scope’s class A analysis and by the significant deleveraging of the Class A.

All transaction counterparties continue to support the ratings.

Key rating drivers

Class A amortisation (positive). Class A has materially amortised since closing. Class A pool factor stands at 57.2%.¹

Cumulative net collections (positive). Observed cumulative collections exceeds both business plan and Scope’s expectations under class A analysis. The reported cumulative net collection ratio is 173.5%, whereas Scope’s cumulative net collection ratio stands at 153.9%.¹

Recovery costs (positive). Recovery costs are approximately 3.2% of gross collections to date, which is below Scope’s expectation under class A analysis.¹

Profitability on closed borrowers (negative). Gross profitability on closed borrowers (i.e., the ratio between gross collections and gross forecast) stands at 89.5% versus the business plan and at 83.2% versus Scope’s B case scenario assumptions. Scope revised its firesale discount assumptions accordingly.¹

Rating-change drivers

Negative. Worse-than-expected Italian economic conditions could lead to liquidity deterioration, reducing servicer performance on collection volumes. This could negatively impact the rating.

Positive. Improved profitability on closed borrowers above Scope’s base case analysis could positively impact the rating of the class A notes.

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 Scope’s updated market value decline assumptions, firesale discount assumptions and the current performance of the transaction. Scope assumed a 23.6% gross recovery rate on the remaining GBV over a weighted average life of 5.0 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, two notch decrease;
   
• one-year recovery lag increase, zero 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 these Credit Ratings, (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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Cash Flow SF EL Model Version 1.1.), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.

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 these Credit Ratings 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 Ratings and it has no impact on the Credit Ratings.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Rossella Ghidoni, Director
Person responsible for approval of the Credit Ratings: David Bergman, Managing Director
The Credit Rating was first released by Scope Ratings on 17 June 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. 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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