Rating action

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

Class A (ISIN IT0005394454), EUR 53.8m outstanding: upgraded to A_SF from BBB+_SF

Class B (ISIN IT0005394462), EUR 7.0m outstanding: upgraded to BBB_SF from BB_SF

Class J (ISIN IT0005394751), EUR 16.8m outstanding: not rated

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

Transaction overview

Marathon SPV S.r.l. is a static cash securitisation of an Italian NPL portfolio worth at closing around EUR 5,027m by gross-book value (GBV). The portfolio was originally acquired by Hoist Finance Group, through two special purpose vehicles (Marte SPV S.r.l. and Pinzolo SPV S.r.l.) from 17 financial institutions. The pool is fully unsecured and composed at closing of three major types of receivables: consumer loans (30.8%), loans guaranteed by promissory notes (19.6%) and unsecured banking loans (49.6%). The transaction is serviced by Hoist Italia S.r.l., a subsidiary of Hoist Finance AB. The transaction closed on 5 December 2019 and the notes’ legal maturity is October 2034.

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 analytical considerations supporting the upgrades of the notes are the following:

Good and consistent servicer performance¹: the servicer has consistently overperformed its original business plan (net cumulative collections ratio stands at 105.2%). The Issuer cash-flows have been relatively stable over time also due to the presence of promissory note (61.5% at closing) performing in line with expectations.
Additionally, both class A and class B have materially amortised since closing, which is positive as it reduces liability costs over the life of the transaction. The current class A and class B pool factors are 18.9% and 20.7%, respectively.

No interest rate risk¹. The issuer is not exposed to the current environment of rising interest rates, since both class A and class B notes pay fixed coupons.

Key rating drivers

The transaction's key rating drivers continue to be aligned with those disclosed on our initial rating action release, dated December 5, 2019.

Rating-change drivers

Positive. further amortization of the note with stable servicer performance and an improvement of the liquidity position could positively impact the ratings.

Negative. worse-than-expected Italian economic conditions could affect the borrowers’ ability to pay, reducing servicer performance on collection volumes. This 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 lifetime gross recovery rate of 8.9%. The remaining weighted average life of Scope expected recoveries is 2.3 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 change compared to the assigned rating in the event of:

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

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 audit. The external 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: Davide Nesa, Director
Person responsible for approval of the Credit Ratings: Antonio Casado, Executive Director
The Credit Ratings were first released by Scope Ratings on 5 December 2019.

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 Rating.

Conditions of use/exclusion of liability
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