Rating action

Scope Ratings GmbH (Scope) has taken the following rating actions:

Class A (ISIN XS1843432078), EUR 105.6m outstanding amount: downgraded to BB-_SF from BB_SF

Class B (ISIN XS1843431930), EUR 30.0m outstanding amount: downgraded to C_SF from CCC_SF

Class J (ISIN XS1843431856), EUR 15.0m outstanding amount: not rated

Class Z (ISIN XS1843431773), EUR 16.0m outstanding amount: not rated

The analysis considered the transaction reporting until January 2023 interest payment date.

Transaction overview

Prosil Acquisition S.A. is a static cash securitisation of a Spanish non-performing loans (NPLs) portfolio is worth around EUR 494.7m by outstanding balance of NPLs and around EUR 40m by third party appraisal value of real-estate owned properties (REO), at closing. The initial NPL pool consisted of senior secured loans (94%), junior secured loans (1%), as well as unsecured loans and secured residual exposures (5%). The loans were extended to individuals (66%) and small and medium-sized companies (34%) and were originated by Abanca. The ratings were first assigned on 30 July 2019 and the legal maturity is in October 2039.

As of December 2022, aggregate gross collections were EUR 114.9m, which represents 50.4% of the original business plan expectations of EUR 227.7m. Sources of collections are real estate sales (47%), amicable strategies (43%) and legal procedure and others (10%).

The class A notes’ notional has amortised by 37.9% as of the latest interest payment date (January 2023). There is a relatively low conversion rate of gross collections, which is partially explained by higher expenses than forecasted in the initial business plan. As a result, the class A notes outstanding balance relative to outstanding GBV has increased to 43.8% from 34.4% at closing.

Interests on class B are subordinated to payment of class A principal if the cumulative net 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.

Class B interest subordination event occurred in April 2020 and interest on class B is subordinated to payment of class A principal, resulting in EUR 5.6m of deferred interests as of January 2023.

Rating rationale

The rating action is driven by Scope’s updated modelling assumptions, which reflect the current and developing macro-economic factors, as well as the observed and expected performance of the transaction.

Scope also compared the transaction’s performance to its own recovery assumptions, in the current macro-economic context, regarding asset resolution timing and recovery estimates developed through transaction-specific observations and benchmarking. Scope’s B case lifetime collections are around 4% lower compared to its assumption at closing.

Reported profitability on closed borrowers stands at 87.9%. Profitability has been slowly declining in the past 12 months.

In the most recent business plan, dated August 2022, lifetime gross collections have been reviewed downwards (7.5%) compared to the initial business plan, with a more backloaded timing on expected recoveries.

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

Key rating drivers

Low discount on property sales (positive)¹. The special servicer has sold 861 properties (EUR 62.3m by sale amount) in the open market since closing. The weighted average property sale amount is close to the market value of the related properties implying around a 3.2% discount.

Granular and secured portfolio (positive)¹. The outstanding portfolio is highly granular, and it is mostly composed of secured exposures (99.9% of GBV). The top 10 exposures represent around 5.2% of the current GBV.

Liquidity protection (positive)¹. A cash reserve equal to 4.5% of the class A provides liquidity protection to senior noteholders, covering senior expenses and interest on the class A notes. Released amounts from the cash reserve account are used to amortise class A notes. 

Interest rate cap (positive)¹. The transaction benefits from an interest rate cap, referencing to Euribor 3 month and with flat strike at 0.50%, which mitigates the interest rate risk arising from the floating nature on the notes.

High realised costs (negative)¹. The total expenses reported in the servicing report is around 29.7% of gross collections. This is higher than the lifetime costs of around 20.5% forecasted in the updated servicer’s business plan as of August 2022.

Low cumulative collections (negative)¹. Observed cumulative net collections are 46.5% of the original business plan expectations as of December 2022.

Rating-change drivers

Positive. An improvement in collections pace and lower realised costs could positively impact the rating.

Negative. A decline in profitability and further delay in collections may 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, as well as the current macro-economic context.

For the class A analysis, Scope assumed EUR 153.7m of future collections over a weighted average life of 4.9 years.

For the class B analysis, Scope assumed EUR 166.5m of future collections over a weighted average life of 4.7 years.

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 in the event of:

• 10% haircut to recoveries, one notch decrease;

• a one-year recovery lag increase, zero notches.

The following shows how the results for class B notes would change in the event of:

• 10% haircut to recoveries, zero notches decrease;

• a one-year recovery lag increase, zero notches decrease.

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 assumption, 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Scope 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 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 the 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 at closing. 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: Shashank Thakur, Analyst
Person responsible for approval of the Credit Ratings: David Bergman, Managing Director
The final Credit Ratings were first released by Scope Ratings on 30 July 2019. The Credit Ratings were last updated on 22 June 2022.

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
© 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.