Rating action

Scope has completed a monitoring review of the following notes issued by Leviticus SPV S.r.l.:

Class A (ISIN IT0005360158*), EUR 740.7m outstanding: downgraded to BB+_SF from BBB-_SF

Class A (ISIN IT0005360174), EUR 221.5m outstanding: not rated

Class J (ISIN IT0005360182), EUR 248.8m outstanding: not rated

The review was based on servicer, investor and payment reporting as of the July 2022 payment date.

Transaction overview

Leviticus SPV S.r.l. is a static cash securitisation of a EUR 7,385m portfolio (as of closing) of Italian non-performing loans. The portfolio was originated by Banco BPM S.p.A. and is serviced by Gardant S.p.A. (formerly known as Credito Fondiario S.p.A.). The transaction closed on 6 February 2019 and its final maturity is in July 2040.

As of the June 2022 collection date, aggregate gross collections were EUR 960.2m, which represents 45.6% of the updated business plan expectations and 39.2% of the original business plan. Total gross collections are split between judicial proceeds (44.4%), discounted payoff proceeds (44.9%), credit sale proceeds (8.5%), indemnity proceeds (1.3%) and other types of collections (0.9%).

Around 67.3% of gross collections (EUR) stem from open debtors (i.e. debtors for which the recovery process is ongoing) and closed debtors account for 32.7% of gross collections (EUR 313.6m) with reference to 13.7% of the transaction’s initial gross book value. Gross collections linked to closed debtors are split between judicial proceeds (11.4%), discounted payoff proceeds (61.8%), credit sale proceeds (25.1%), indemnity proceeds (0.2%) and other types of collections (1.5%).

The servicer revises the business plan on an annual basis. The last business plan (2022) reports expected gross recoveries 14.0% lower than the original business plan and the expected collection weighted average life increased from 4.0 to 4.4 years. The net present value cumulative profitability ratio, computed for closed positions, stands at 107.5%, while the cumulative collection ratio stands at 71.3%. Both remain above the 70% threshold that will defer Class B interest below Class A principal repayment.

Rating rationale

The rating is mainly driven by the transaction’s actual and expected performance as reflected in Scope’s modelling assumptions. Scope has updated its recovery assumptions considering the transaction-specific performance, developments in macroeconomic fundamentals, and peer transaction benchmarks. The rating is also driven by the correction of a cash flow model error. The error was related to the missing accrued Class B interests when those were subordinated to Class A principal payment and consequently not paid when that payment was returning senior to Class A principal, upon a cure of the subordination trigger.

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

Key rating drivers

Cumulative collections (negative)¹. Observed cumulative net collections are 71.3% of the original business plan expectations through 30 June 2022.

Low profitability of closed positions (negative)¹. Gross collections from closed borrowers are largely obtained through discounted payoffs (44.9%) and other credit sale proceeds (8.5%). Based on Scope’s analysis, closed debtors account for around 13.9% of the transaction’s initial gross book value. Profitability on these debtors, at 90.3%, is below Scope’s expectations under the B case scenario.

Class B interest payment (negative)¹: notwithstanding the performance of the servicer being below the initial business plan in terms of timing, interest of Class B will continue to be paid senior to the principal of Class A notes until one of the performance triggers hits the threshold. This will reduce the funds available to repay the Class A principal over time.

Class A amortisation (positive)¹. Class A has materially amortised since closing, which reduces liability costs over the life of the transaction (interests and GACS fees). The current class A pool factor is 51.4% three and a half years after closing.

Low recovery expenses (positive)¹. Recovery expenses amount to 3.7% of cumulative gross collections, which is below Scope’s assumption of 9%. This is on the lower end of Italian non-performing loan transactions rated by Scope.

Rating-change drivers

Positive. Improving performance on closed borrowers’ profitability could positively impact the ratings.

Negative. The timing of collections show a negative trend. A continuous downward trend in the pace of collections could negatively affect the rating.

Quantitative analysis and assumptions

Scope analysed cash flow 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 the current performance of the transaction. At the B case, Scope assumed a lifetime gross recovery rate of 34.1% over a remaining weighted average life of 3.6 years. By portfolio segment, Scope assumed a lifetime gross recovery rate of 54.7% and 10.6% for the secured and unsecured portfolios, respectively.

Sensitivity analysis

Scope tested the resilience of the rating 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, minus 1 notch;
   
• a one-year recovery lag increase, minus 1 notch.

*. Editor's note: On 12 October 2023 we have amended the Class A's ISIN. In the initial publication the Class A's ISIN was IT0005357360. 

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, 5 August 2022; Counterparty Risk Methodology, 14 July 2022; General Structured Finance Rating Methodology, 17 December 2021), are available on https://www.scoperatings.com/ratings-and-research/structured-finance/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://www.scoperatings.com/ratings-and-research/structured-finance/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/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 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. 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
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: Antonio Casado, Executive Director
The Credit Rating was first released by Scope Ratings on 6 February 2019. The Credit Ratings/Outlooks was last updated on 4 February 2021.

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. One of the General Managers of Scope Ratings, who joined the organisation on 1 December 2021, has a significant relationship with an affiliate of Deutsche Bank AG, a related third party to this transaction.

Conditions of use / exclusion of liability
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