Rating action

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

Class A (ISIN IT0005340465), EUR 104.9m outstanding: downgraded to CCC_SF from B+_SF

Class B (ISIN IT0005340473), EUR 24.4m outstanding: not rated

Class J (ISIN IT0005340481), EUR 11.4m outstanding: not rated

Scope’s review was based on servicer, investor and payment reporting as of July 2022 payment date.

Transaction overview

Maggese S.r.l. is a static cash securitisation of secured and unsecured non-performing loans (NPLs) extended to corporates and individuals in Italy. The loans were originated by Cassa di Risparmio di Asti S.p.A. and Cassa di Risparmio di Biella e Vercelli - Biverbanca S.p.A. and are serviced by Prelios Credit Servicing S.p.A. The transaction closed on 26 July 2018 and the class A legal maturity is in July 2037.

As of July 2022 payment date, aggregate gross collections were EUR 89.4m, which represents 96.1% of the updated business plan expectations and 50.1% of the original business plan expectations. Class B interest is subordinated as the net proceeds cumulative collection ratio stands at only 50.7%, remaining below the 90% threshold since the fifth payment date. The current unpaid class B interests stand at EUR 2.7m.

Approximately 70.5% of gross collections (EUR 63.0) stem from open debtors (i.e., debtors for which the recovery process is still ongoing), while closed debtors account for 29.5% of gross collections (EUR 26.4m). The closed debtors represent 10.3% of the transaction’s initial GBV. Gross collections linked to closed debtors are split between judicial proceeds (42.5%), credit sale proceeds (31.5%), discounted payoff (‘DPO’) proceeds (23.5%), indemnity proceeds (2.4%) and other types of collections (0.1%).

The servicer reviews the business plan on an annual basis. The last business plan (updated in 2022) reports lifetime expected gross recoveries which are 19.4% lower than the original business plan forecast, while the business plan weighted average life increased from 3.4 to 4.6 years. The net present value cumulative profitability ratio (net present value ratio), computed for closed positions, stands at 95.0%.

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 estimates assumptions considering the transaction-specific performance, developments in macroeconomic fundamentals, and peer transaction benchmarks.

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

Key rating drivers have evolved since our previous rating action release dated April 6, 2022. Location of the assets in the northern Italian regions was considered a positive driver due to generally more dynamic economic conditions and more efficient tribunals relative to other Italian regions. However, the pace and profitability of collections has materially fallen short of Scope's expectations, as highlighted below, so we have ceased to consider location as a positive driver. In addition, the downward revision of the business plan constitutes a new negative rating driver. Other rating drivers remain aligned with those previously disclosed.

Key rating drivers

Sufficient liquidity coverage (positive)¹. The deal benefits from an amortising cash reserve currently sitting at target level of EUR 4.5m, representing 4% of Class A outstanding notes balance. The reserve is estimated to cover senior expenses and class A notes’ interest for around 13 months.

Slower than expected cumulative collections (negative)¹. Aggregate gross and net collections amount to EUR 89.4m and EUR 84.9m, respectively. Total gross collections are split between judicial proceeds (71.8%), Notesales proceeds (11.2%), DPO proceeds (10.7%) and other sources of collections (6.3%). Aggregate net collections have underperformed relative to Scope’s projections at closing and the original servicer’s business plan with a cumulative collection ratio of 50.7% which is amongst the worst compared to other NPL transactions Scope continues to monitor.

Low profitability of closed positions (negative)¹. Gross collections from closed borrowers are 29.5% of cumulative collections and were mainly obtained through Judicial procedures (42.5%), DPO proceeds (23.5%), Notesales proceeds (31.5%) and other sources of collections (2.5%). Based on Scope’s analysis, closed debtors account for around 10.3% of the transaction’s initial GBV which is quite low considering the transaction closed 4.5 years ago. Profitability on the secured closed debtors, at 71%, is below Scope’s expectations under the B case scenario at closing.

Business plan review (negative)¹. In terms of expected gross proceeds, the last business plan (updated in 2022) is 19.4% lower than its original business plan estimates and 7.0% lower than the business plan updated in 2021. The outstanding collections projected by the last business plan is lower than the outstanding balance of the class A notes, with a gross coverage ratio of 99.6%.

Slowdown of the Italian economy (negative) ². The adverse impact of tightening financing conditions and persistent inflationary pressures could slow down the Italian economy. This could lead to a deterioration of liquidity conditions and negatively affect the collection volumes.

Rating-change drivers

Positive. Improvement in pace of collections could positively impact the rating.

Negative. Continuous underperformance of closed positions against Scope expectations could negatively affect 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 the current performance of the transaction. At the B case, Scope assumed a gross recovery rate of 20.3% over a remaining weighted average life of 2.3 years. By portfolio segment, Scope assumed a gross recovery rate of 33.3% and 6.2% 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, 0 notches.
   
• a one-year recovery lag increase, 0 notches.

Rating driver references
1. Transaction documents and reporting (Confidential)
2. Scope research Republic of Italy

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, 25 January 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for this Credit Rating (Cash Flow SF EL Model Version 1.1), is 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: Elom Kwamin, Analyst.
Person responsible for approval of the Credit Rating: Antonio Casado, Executive Director
The Credit Rating was first released by Scope Ratings on 26 July 2018. The Credit Rating was last updated on 6 April 2022.

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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