Rating action

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

Class A (ISIN IT0005387904): EUR 609.3m: downgraded to BB+_SF from BBB_SF

Class B (ISIN IT0005387912): EUR 80.0m: downgraded to CCC_SF from B-_SF

Class J (ISIN IT0005387920): EUR 30.0m: not rated

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

Transaction overview

Prisma SPV S.r.l. is a static cash securitisation of secured and unsecured non-performing loans extended to companies and individuals in Italy worth EUR 6,056 million by gross book value (GBV) at closing. The portfolio was originated by Unicredit S.p.A. and is serviced by doNext S.p.A. and by doValue S.p.A. as master and special servicer, respectively. The transaction closed on 18 October 2019.

Aggregate gross collections stood at EUR 997.5m as of 30 September 2022, representing 92.2% of the original business plan expectation up to such date. The sources of total gross collections are judicial proceeds (48.5%), discounted pay-off (DPO) proceeds (33.0%), credit sales proceeds (16.5%) and indemnities (2.0%).

About 33.6% of gross collections (EUR 335.8m) came from closed debtors (i.e. debtors for which the recovery process is completed). Since closing, Scope estimates 14.4% of initial gross book value has been closed.

50.0% of the class A notes’ notional has amortised and the reported net proceeds cumulative collection ratio and NPV profitability ratios are 91.1% and 99.2% respectively. There has been no occurrence of interest subordination event as both ratios remain above the 90.0% trigger level.

Rating rationale

The rating action is driven by the observed and expected performance of the transaction. Scope’s modelling assumptions reflect the agency’s view of the transaction’s future performance.

All key counterparties continue to support the ratings. Key rating drivers have evolved since our previous rating action release, dated August 6, 2021. Liquidity coverage has decreased and it is now below the average of peer transactions. Although available liquidity is still sufficient to support the current ratings, we do not consider it anymore a positive rating driver. Other rating drivers remain aligned with those previously disclosed.

The review also addressed the risk of a slowdown of the Italian economy driven by persistent inflationary pressures combined with tighter monetary policy, and the potential deterioration of liquidity conditions which could impair servicers’ performance on collections. The ratings also consider the legal and structural protection provided to the notes, the liquidity protection and the interest rate hedging agreements.

Key rating drivers

Cumulative collections compared to Scope’s expectations (positive)¹. Observed cumulative net collections have been higher than Scope’s original net B case scenario assumptions.

Hedging (positive)¹. The transaction implements a cap agreement which mitigates the risk of increased liabilities on the notes resulting from a rise in Euribor rates.

Low profitability of closed positions (negative)¹. Gross collections from closed borrowers represent 33.6% of cumulative collections and were mainly obtained through DPO proceeds (36.2%), Notesales proceeds (49.1%), Judicial proceeds (12.9%) and other sources of collections (1.7%). Profitability on the secured closed debtors, at 67.7%, is below Scope’s expectations under the B case scenario at closing. Scope has reviewed to the downside its profitability expectations by decreasing our lifetime recovery expectations, under a B case scenario, to 31.3% from 35.7% at closing.

Slowdown of the Italian economy (negative)². 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. Consistent servicer outperformance in terms of recovery timing and the total amount of collections could positively impact the rating.

Negative. Servicer performance falling short of Scope’s collection amounts and timing assumptions could negatively impact 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 17.9% over a remaining weighted average life of 1.6 years. By portfolio segment, Scope assumed a remaining gross recovery rate of 27.8% and 0.4% for the secured and unsecured portfolios, respectively.

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 would change compared to the assigned rating in the event of:

• 10% haircut to recoveries, minus three notches;
   
• a one-year recovery lag increase, minus three notches;

The following shows how the results for class B notes change compared to the assigned rating in the event of:

• 10% haircut to recoveries, minus three notches;
   
• a one-year recovery lag increase, minus one notch;

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 these Credit Ratings, (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://www.scoperatings.com/ratings-and-research/structured-finance/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://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 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. 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: Elom Kwamin, Analyst.
Person responsible for approval of the Credit Ratings: Antonio Casado, Executive Director
The Credit Rating was first released by Scope Ratings on 18 October 2019. The Credit Ratings were last updated on 6 August 2021.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings. 

Conditions of use / exclusion of liability
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