Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodologies, including key rating assumptions and models. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Aragorn NPL 2018 S.r.l. on 12 April 2022. Credit ratings remain as follows:

Class A (ISIN IT0005336992), EUR 374.9m outstanding amount: rated B_SF

Class B (ISIN IT0005337008), EUR 66.8m outstanding amount: rated CC_SF

Class J (ISIN IT0005337016), EUR 10.0m outstanding amount: not rated

Aragorn NPL 2018 S.r.l. is a static cash securitisation of secured and unsecured non-performing loans extended to companies and individuals in Italy worth around EUR 1.6bn by gross book value (GBV) at closing. The loans were originated by Credito Valtellinese S.p.A. and Credito Siciliano S.p.A. and are currently serviced by Cerved Credit Management S.p.A. and Special Gardant S.p.A. (former Credito Fondiario S.p.A.). The transaction closed on 14 June 2018 and the legal maturity is in July 2038.

The review was conducted based on available payment, investor report information and servicer reporting as of 31 January 2022.This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

As of 31 December 2021, cumulative gross collections were EUR 194.9m, which represents 51% of the original business plan expectations of EUR 382.3m. Total available gross collections are split between discounted pay-off (‘DPO’) proceeds (51.9%), judicial proceeds (30.9%), credit sales proceeds (13.6%) and other sources of collections (3.6%).

Around 47.7% of gross collections (EUR 93.1m) come from closed debtors (452 debtors), whose GBV represents around 13.6% of the transaction’s initial GBV. The net profitability on closed debtors (as reported in the servicer report) is below the servicers’ expectation, standing at 86.6%. Gross collections from closed debtors are split between DPO proceeds (69.1%), credit sale proceeds (27.3%), judicial proceeds (2.8%) and other types of collection (0.9%).

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%. This ratio is curable, and once is cured, all accrued and unpaid interest are distributed senior to Class A principal payments.

As of the latest interest payment date in January 2022, a class B interest subordination event has occurred as the transaction’s net cumulative collection ratio and the NPV profitability ratio are at 56.8% and 105.6%, respectively. Class B interest subordination is continuing since July 2020 and total accrued and unpaid class B interests amount to EUR 8.9m.

The ratings consider the issuer’s exposure to key counterparties.

CREDIT-POSITIVE (+)

Senior notes’ liquidity protection. A cash reserve protects the liquidity of senior noteholders, covering senior fees and interest on class A notes. It currently stands at EUR 19.8m (around 5.0% of class A notes’ principal amount after the January 2022 payment date).

Portfolio servicing. Two independent special servicers limit the transaction’s sensitivity to servicer disruption. In the event of a servicer disruption, the master servicer will assist the issuer in finding a suitable replacement.

CREDIT-NEGATIVE (-)

Cumulative collections. Observed cumulative net collections are 51% of the original business plan expectations through 31 December 2021.

Closed debtors’ profitability. The profitability is below the initial business plan forecast, as the net profitability ratio for closed positions is 86.6%. Actual gross collections from closed debtors are also significantly lower than Scope’s B rating expectations at closing for these borrowers.

Inflation induced economic slowdown. High inflation on the back of soaring energy and commodity prices combined with tighter monetary policy could see recession risk increase substantially. Thus, deteriorated liquidity conditions could reduce the servicers’ performance on collections. Scope has recently reduced its growth projections for Italian economy in 2022 from 4.5% to 4.1%.

The methodologies applicable for the reviewed ratings (General Structured Finance Rating Methodology, 17 December 2021; Non-Performing Loan ABS Methodology, 6 August 2021; Methodology for Counterparty Risk in Structured Finance,13 July 2021) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Leonardo Scavo, Senior Analyst

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