Rating action

Scope Ratings GmbH (Scope) has taken the following rating actions on the notes issued by Ifis NPL 2021-1 SPV S.r.l.:

Class A (ISIN IT0005556391), EUR 515,000,000: rated BBB+_SF

Class B (ISIN IT0005556409), EUR 90,000,000: rated B_SF

Class J2 (ISIN IT0005556417), EUR 25,000,000: not rated

Class Ax (ISIN IT0005439150), EUR 158,775,000: withdrawn from A-_SF

Class Ay (ISIN IT0005439176), EUR 206,225,000: withdrawn from A-_SF

Class B (ISIN IT0005439606), EUR 74,400,000: withdrawn from B+ _SF

Class J (ISIN IT0005439614), EUR 23,600,000: not rated

Transaction overview

The transaction is a restructuring of the securitisation carried out by IFIS NPL 2021-1 SPV S.r.l. in March 2021. In the context of the restructuring, the issuer purchased an additional portfolio of receivables from Ifis NPL Investing S.p.A. (‘seller’) and sold back to the seller a portion of the original securitised portfolio. Ifis NPL Servicing S.p.A. (part of Banca Ifis Group) will be the special and master servicer.

The current portfolio is worth around EUR 1,905.8m by gross book value (‘GBV’) and it is composed of unsecured non-performing loans assisted by a wage garnishment order (‘ODA’ – 46% of GBV), unsecured non-performing loans for which a wage garnishment order is expected to be assigned (‘Pre-ODA’ – 39% of GBV) and extrajudicial repayment plans (15% of GBV). The issuer is entitled to receive all portfolio collections since cut-off date and the collections deriving from the repurchased receivables until 30 June 2023.

The transaction structure, after the restructuring, comprises four tranches of notes: class A, class B, class J and class J2. Class A and class B are sequentially amortising, while class J and J2 are paid pro-rata and pari-passu. Proceeds from the issuance of class A, class B and class J2 notes were used to finance the early redemption of the original senior and mezzanine notes (class Ax, Ay and B) issued on 19 March 2021, as well as the purchase price of an additional portfolio of receivables. Original class J was not redeemed. The structure comprises an amortising liquidity reserve with a target amount equal to 6.5% of the senior notes outstanding balance as well as an interest rate cap on class A notes.

Rating rationale

The ratings are primarily driven by the expected recovery amounts and timing of collections from the portfolio. The recovery amounts and timing assumptions consider the portfolio’s characteristics, the servicer’s recovery strategy, as well as Scope’s economic outlook for Italy and its assessment of the special servicer’s capabilities. The ratings are supported by the structural protection provided to the notes, the absence of equity leakage provisions, the liquidity protection, and the interest rate hedging agreement.

The ratings also address the issuer’s exposure to key counterparties, with the assessment based on counterparty substitution provisions in the transaction and, when available, Scope’s ratings or other public ratings on the counterparties.

Key rating drivers

Moderately regular cash flows expected for ODAs and repayment plans (positive). NPLs that are attached to an ODA, or an existing repayment plan generate more regular cash flows than those serviced following other recovery strategies. Particularly, for the ODA portfolio, the seizure of borrower incomes or pensions ensures monthly payments from the borrowers, although recovery cash flows are generally spread over several years¹.

ODAs already issued are valid and not challengeable (positive). The period for objecting to the existing ODAs has already elapsed. Therefore, the portfolio’s ODAs are valid, existing and not challengeable. Also, in the event of change of job or retirement, the enforcement title remains valid, and the court can issue a new ODA to the new employer or social security administrator¹.

Positive selection of the extrajudicial repayment plans (positive). More than 90% of the extrajudicial repayment plans shows at least 12 months of consecutive instalments paid¹.

Material share of Pre-ODA receivables (negative). Around 39% of the GBV refer to positions that are under the judicial process to obtain an ODA. Although around 40% of the Pre-ODA receivables are in the most advanced stage, there is no guarantee that an ODA will be issued¹.

High exposure of ODAs to the private sector (negative). The most frequent events leading to a payment interruption from an ODA are the death or job loss of a borrower. Private sector employees (48% of the loan-level ODAs’ GBV) are generally more exposed to job loss events compared to public servants (12%), while pensioners (27%) are generally more exposed to life events. For 13% of the ODAs’ GBV the employer type is not available¹.

Material share of borrowers with ODAs have a temporary contract (negative). About 20% of the employed borrowers (in terms of ODA receivables’ GBV) have a temporary job or the information is not available. If they are unable to renew their employment contracts or find a new job before the contract expires, the ODA’s associated cash flows will be interrupted, even though the ODA will remain legally valid¹.

Rating-change drivers

Front-loading of collections (upside). A front-loading of future instalments under the ODAs, Pre-ODAs or repayment plans will reduce the negative carry on the notes and increase the available funds for senior notes’ principal amortisation.

Higher-than-expected instalments for the Pre-ODA receivables (upside). Instalments for the Pre-ODA receivables will be disclosed only upon issuance of the ODA. Actual instalments higher than the projected ones would increase the amount of available collections.

Slowdown of Italian economy and higher unemployment rates (downside). An increase of job losses and the inability of employers to pay salaries will limit the effectiveness of the ODAs. Alternative strategies are key to ensure an adequate level of collections in case these events materialise.

Unsuccessful or delayed ODA (downside). A longer-than-expected time for the competent court to issue an ODA or legal oppositions of the borrowers could negatively affect the timing of the collections of the Pre-ODA receivables. Failure to obtain an ODA would also reduce future 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 and derived a rating-conditional cash flow projection of gross recoveries for the portfolio of defaulted loans.

Scope performed a specific analysis for recoveries based on the historical data provided by the servicer, using different approaches for repayment plans, ODAs and Pre-ODAs. For unsecured exposures with ODAs or Pre-ODAs, Scope calibrated the lifetime recoveries based on historical line-by-line collections since the ODA’s issuance date, vintage data for the period 2016-2022 and historical success rate to obtain an ODA. For repayment plans, Scope analysed historical line-by-line collections on existing repayment plans, historical pay rate and vintage data for the period 2017-2021. Scope also assessed the process to obtain a wage garnishment order, as well as the efficiency of the structure to manage existing ODAs and repayment plans. Scope accounted for the current macro-economic scenario, taking a forward-looking view on the macro-economic developments.

For the class A notes analysis, Scope assumed a gross recovery rate of 44.6% over a weighted average life of 6.7 years. By segment, Scope assumed a gross recovery rate of 50.7% for the ODA receivables, 38.1% for the Pre-ODA receivables and 42.8% for repayment plans.

For the class B notes analysis, Scope assumed a gross recovery rate of 56.9% over a weighted average life of 6.7 years. By segment, Scope assumed a gross recovery rate of 63.7% for the ODA receivables, 47.9% for the Pre-ODA receivables and 59.0% for repayment plans.

In its analysis, Scope considered transaction’s servicer fees structure and assumed legal expenses to be around 8% of lifetime gross collections.

Sensitivity analysis

Scope tested the resilience of the ratings against deviations in the main input parameters: the portfolio recovery-rate and the portfolio recovery timing. This analysis has the sole purpose of illustrating the sensitivity of the ratings to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the results for class A change compared to the assigned credit ratings in the event of:

• a decrease in recovery rate by 10%, minus two notches.
   
• an increase in the recovery lag by one year, minus two notches.

The following shows how the result for class B changes compared to the assigned credit rating in the event of:

• a decrease in recovery rate by 10%, zero notches.
   
• an increase in the recovery lag by one year, zero notches.

Rating driver references
1. Loan-by-loan data tape of the securitised pool (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 relevant asset assumptions and taking into account the transaction’s main structural features, such as the instruments’ priority of payments, the instruments’ size and coupons. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodologies used for these Credit Ratings, (Non-Performing Loan ABS Rating Methodology, 5 August 2022; General Structured Finance Rating Methodology, 25 January 2023; Counterparty Risk Methodology, 13 July 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/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://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 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 Leonardo Scavo, Senior Specialist.
Person responsible for approval of the Credit Ratings: David Bergman, Managing Director.
Class Ax (ISIN IT0005439150) Credit Rating was first released by Scope Ratings on 19 March 2021.
Class Ay (ISIN IT0005439176) Credit Rating was first released by Scope Ratings on 19 March 2021.
Class B (ISIN IT0005439606) Credit Rating was first released by Scope Ratings on 19 March 2021.
Class A (ISIN IT0005556391) Credit Rating was first released by Scope Ratings on 28 July 2023.
Class B (ISIN IT0005556409) Credit Rating was first released by Scope Ratings on 28 July 2023.

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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