Rating action

The transaction comprises the following instruments:

Class A (IT0005413197), EUR 174.0m outstanding: upgraded to BBB+_SF from BBB_SF

Class B (IT0005413213), EUR 20.0m outstanding: not rated

Class J (T0005413221), EUR 3.4m outstanding: not rated

The review performed by Scope Ratings GmbH (Scope) was based on investor and payment reports up to and including the March 2022 payment date.

Transaction overview

Spring SPV S.r.l. is a static cash securitisation of a EUR 1,377.2m portfolio (at closing) of Italian non-performing loans (NPLs) extended to companies and individuals in Italy. The loans were originated by BPER Banca S.p.A., Banco di Sardegna S.p.A. and Cassa di Risparmio di Bra S.p.A. and are currently serviced by Prelios Credit Servicing S.p.A. The transaction closed on 18 June 2020.

After four interest payment dates, the transaction’s collections are above Scope’s expectations for the 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 March 2022 payment date, aggregate gross collections were EUR 165.7m, which represent 141.3% of the original business plan forecast of EUR 117.3m for the same period and 147.5% of Scope’s projections under the class A analysis. Gross collections stem from the following strategies: judicial (43.5%), discounted pay-off (36.1%), indemnities (1.7%) and note sales and other collection types (18.6%).

Closed borrowers (285) accounted for 49.0% (EUR 81.2m) of gross collections. Closed borrowers represented 20.3% of the portfolio’s gross book value at closing. Closed debtors’ gross collections stem from discounted pay-off (47,7%), judicial (16,6%), notesales (30,9%) e other (4,8%) collection types. Based on the last loan-by-loan data provided, 1048 properties (11.9% of the unsold properties at closing) have been sold after the issue date (18 June 2020) with an average discount rate of 46.0%, below Scope’s initial assumptions for the class A notes.

Recovery costs are approximately 7.8% of gross collections to date (net of ad interim at closing), which is below Scope’s expectation under the class A analysis.

Interests on class B are subordinated to the payment of class A principal if the net cumulative collection ratio falls below 95% of the servicer’s business plan target or the net present value profitability ratio falls below 95%. As per the last investor report dated March 2022, no class B interest subordination occurred as the net cumulative collection ratio and the net present value profitability ratio stand at 151.8% and 108.6%, respectively.

As of the last payment date (March 2022), 45.6% of the 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 a peer analysis. The upgrade is mainly driven by higher than expected recoveries relative to Scope’s class A analysis, the significant deleveraging of class A and the relatively good profitability on closed borrowers.

The rating incorporates the issuer’s exposure to key counterparties.

Key rating drivers

Cumulative net collections (positive)¹. Observed cumulative collections exceed both the business plan and Scope’s expectations under the class A analysis. The reported cumulative net collection ratio is 151.8%, whereas Scope’s cumulative net collection ratio stands at 150.3%. Removing the large amount of collections already available at closing, the gross cumulative recovery rate is 256.2% compared to the initial business plan.

Class A amortisation (positive)^1. Class A has materially amortised since closing, which is positive as it reduces liability costs over the life of the transaction (interests and GACS fees). The current class A pool factor is 54.4% after less than two years from closing.

Liquidity protection (positive) ¹. An amortising cash reserve covering senior expenses and interest on the class A notes is currently equal to 5% of the outstanding class A notes’ balance. Based on Scope’s analysis, the current reserve level covers around two to three payment dates of stressed senior costs and Class A interest.

Inflation induced economic slowdown (negative)²: 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 servicer’s performance on collections. Scope has recently revised down its growth projections for the Italian economy in 2022.

Rating-change drivers

Negative. Worse-than-expected Italian economic conditions could lead to a 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 in order to produce a rating-conditional cash flow projection of gross recoveries for the portfolio of defaulted loans.

Scope assumed a 26.3% gross recovery rate on the remaining gross book value over a weighted average life of 4.7 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)
2. Scope research

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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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 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 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 the 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/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
The 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: Davide Nesa, Director
Person responsible for approval of the Credit Rating: David Bergman, Managing Director
The Credit Ratings was first released by Scope Ratings on 18 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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