Rating action

Scope Ratings GmbH (Scope) has completed a monitoring review of the following notes issued by Titan SPV S.r.l.:

Class A (ISIN IT0005432049): EUR 55.6m: downgraded to BB+_SF from BBB_SF

Class B (ISIN IT0005432056): EUR 15.0m: not rated

Class J (ISIN IT0005432064): EUR 10.1m: not rated

Scope’s review was based on servicer, investor and payment reporting as of January 2023 payment date.

Transaction overview

Titan SPV S.r.l. is a static cash securitisation of an Italian non-performing lease portfolio worth around EUR 335 million by gross book value (GBV) at closing. The portfolio was originated by Alba Leasing S.p.A. (57% of GBV), Release S.p.A. (26% of GBV) and Banco BPM S.p.A. (17% of GBV). The pool is serviced by Prelios Credit Servicing S.p.A. as special and master servicer. The transaction closed on 28 December 2020.

Aggregate gross collections amount to EUR 54.8m as of 31 January 2023. The source of total gross collections is mostly represented by sale and rent proceeds from leased assets (88.7%), while the remainder proceeds (11.3%) stem from judicial, discounted-pay-offs (DPOs), indemnities, givebacks and other type of proceeds.

About 16.7% of gross collections (EUR 9.1m) stem from closed debtors (i.e. debtors for which the recovery process is completed). Since closing, Scope estimates 6.9% of initial gross book value has been closed.

The class A note has amortised by 38.6% of its notional at closing while the reported net proceeds cumulative collection ratio and NPV profitability ratios are 166.38% and 192.42% respectively. There has been no occurrence of interest subordination event as both ratios remain above the 90.0% trigger level.

Rating rationale

The review addressed a) the observed performance of the collateral as of the review cut-off date, b) Scope´s forward-looking performance assumptions, in the context of the expected macro-economic environment over the remaining life of the transaction, c) the transaction´s updated liability structure, liquidity and interest rate hedging arrangements, and e) the issuer´s exposure to key transaction parties.

The main considerations on transaction’s performance are the following:

Low profitability of secured closed positions (negative)¹. Total gross collections from closed borrowers represent 16.7% of cumulative collections and were mainly obtained through the sale of the leased assets (58.9%). Based on Scope calculations, closed secured debtors account for around 6.6% of the transaction’s initial secured gross book value. The profitability on these debtors, at 69.5%, is below Scope’s expectations under the B case assumptions at closing.

Faster-than-expected cumulative collections (positive)¹.  Aggregate net collections, which amount to EUR 45.2m, have outpaced Scope’s timing assumptions. Based on the servicer business plan, aggregate net collections are 172.6% of original net expectations.

Hedging (positive)¹. Risk arising from the recent spike in interest rates are mitigated by the transaction´s cap spread agreement. The cap spread notional schedule is fully aligned with Scope’s expected amortisation profile of the Class A note. Additionally, a cap is embedded in the class A Euribor component, up to 4.5% until note’s maturity.

Key rating drivers

The transaction's key rating drivers continue to be aligned with those disclosed on our initial rating action release, dated December, 28, 2020.

Rating-change drivers

Positive. Consistent servicer improvement in terms of secured profitability could positively impact the rating.

Negative². Slowdown of the Italian economy driven by persistent inflationary pressures combined with tighter monetary policy, and the potential deterioration of borrowers’ affordability conditions could impair servicers’ performance on collections.

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 lifetime gross recovery rate of 46.5% over a weighted average life of 3.3 years (from its closing value of 50.4% over 4.1 years). By portfolio segment, Scope assumed a lifetime gross recovery rate of 52.4% and 4.2% for the secured and unsecured portfolios, respectively, over a weighted average life of 3.4 and 2.1 years (from their closing values of 56.5% and 6.6% over 4.3 and 7.1 years).

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

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

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 Structured Finance Expected Loss 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 this 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. The external due diligence assessment 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 Ratings are UK-endorsed.
Lead analyst: Rossella Ghidoni, Director.
Person responsible for approval of the Credit Ratings: Antonio Casado, Executive Director
The Credit Rating was first released by Scope Ratings on 28 December 2020.

Potential Conflict
See www.scoperatings.com under Governance & Policies/Regulatory 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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