Rating action

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

Class A (ISIN IT0005429128): EUR 308.3m: downgraded to BB+_SF from BBB_SF

Class B (ISIN IT0005429144), EUR 91,000,000: not rated

Class J (ISIN IT0005429151), EUR 10,000,000: not rated

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

Transaction overview

Relais SPV S.r.l. is a static cash securitisation of an Italian non-performing lease portfolio worth around EUR 1,583m (at closing) by gross book value (as total gross claim amount). The portfolio was originated by Unicredit Leasing S.p.A. and serviced by doValue S.p.A. as special servicer and Italfondiario S.p.A. as master servicer. The transaction closed on 11 December 2020 and the legal maturity is July 2040. Scope does not rate the class B and J notes.

As of the December 2022 payment date, aggregate gross collections were EUR 269.7m, which represents 101.9% of the original business plan expectation of EUR 264.7m over the same period. The sources of total gross collections are asset sale proceeds (90.2%), judicial proceeds (7.0%), discounted pay-off (DPO) proceeds (2.7%) and others (0.1%).

About 17.8% of gross collections (EUR 48.0m) came from closed debtors (i.e. debtors for which the recovery process is completed). Since closing, Scope estimates 5.7% of initial gross book value has been closed. Collections from closed debtors stem from asset sale proceeds (98.8%) and other sources of collections (1.2%).

The class A notes’ notional has amortised by 33.8% and the reported cumulative net collection ratio and NPV profitability ratios are 111.4% and 125.7% respectively. No class B interest subordination event has occurred, 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 closed debtors (negative)¹. Gross collections from closed leases are 17.8% of cumulative collections and were mainly obtained through sale of assets. Based on Scope’s analysis, closed leases account for around 5.7% of the transaction’s initial gross book value. Profitability on these leases is 10% below Scope’s expectations under the B case scenario at closing.

Cumulative expenses (negative)¹. Cumulative recovery expenses, at 19.5% of cumulative gross collections, are above Scope’s lifetime assumption. The high expense level could be the result of the servicer front-loading some recovery expenses, in which case the expense ratio would decrease over time once collections on the related positions are received. But Scope has not been provided with evidence to validate if the servicer has effectively front-loaded recovery expenses.

Property sales (negative)¹. The special servicer has sold 532 leased properties since the closing date in the open market. Majority of these properties were commercial and industrial leased assets (48.1% and 45.5% of the total number of sold leased properties since closing). Sale prices are on average significantly lower than the asset valuations available at the issuance date (-46.7% and -38.4% weighted average discounts). The resulting discount for commercial leased properties is higher than Scope’s original stresses used for the Class A analysis.

Cumulative collections are faster than expected (positive)¹. Aggregate gross and net collections amount to EUR 269.7m and EUR 220.4m, respectively. Aggregate net collections, which represent 111.4% of the original servicer’s expectations, have also outpaced Scope’s timing expectations under the class A rating scenario.

Hedging (positive)¹. A cap agreement with a progressively increasing strike mitigates the risk of increased liabilities on the notes due to rising Euribor. Furthermore, the current cap notional exceeds the class A notes’ outstanding amount by 58.9%.

Key rating drivers

The transaction's key rating drivers continue to be aligned with those disclosed on our initial rating action release, dated December 11, 2020, with the exception of the negative driver that referred to the 'material portion of non-repossessed and non-regularized assets'. Since closing, such assets have significantly reduced by about 55% in terms of initial appraisal value.

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.

Negative. Scope has been made aware that the servicer has requested certain indemnities to the seller. However, Scope has not had access to the amount of the claims. If the amount of the requested indemnities were a significant portion of the total portfolio, and the proceeds from such indemnities were significantly below Scope's expected recovery proceeds for the affected positions, this could negatively impact the ratings.

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 50.5% (from its closing value of 51.4%) over a weighted average life of 5.7 years (same as closing).

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 two notches;
   
• a one-year recovery lag increase, zero notches; 

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 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 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 11 December 2020.

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