Rating action

Scope Ratings GmbH (Scope) has performed the following rating actions after completing a monitoring review on the notes issued by Futura 2019 S.r.l.:

Class A (ISIN IT0005395402): EUR 53.4m: upgraded to BBB+_SF from BBB_SF

Class B (ISIN IT0005395410): EUR 37.0m: not rated

Class J (ISIN IT0005395428): EUR 8.0m: not rated

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

Transaction overview

Futura 2019 S.r.l. is a static cash securitisation of an Italian non-performing loan portfolio worth around EUR 1,256m by gross book value at closing. The portfolio was originated by 53 Italian banks. The master and special servicer is Guber Banca S.p.A. The transaction closed on 16 December 2019.

Gross collections amount to EUR 155.3m as of the July 2023 payment date and are mostly from judicial proceeds (65%) and discounted payoffs (17%). The remaining collections stem from credit sales (5%) and other types of proceeds (13%).

About 65% of gross collections (EUR 100.7m) are from closed debtors (i.e. debtors whose recovery process is complete). Out of this subset of collections, most were obtained through judicial proceedings (55%). Since closing, Scope estimates that 35% of the initial gross book value has been closed.

Since closing, the class A note has amortised by 66% of its notional. The reported cumulative collection and net present value profitability ratios are 82.6% and 107.2% respectively as of July 2023. One interest subordination event has occurred after the cumulative collection ratio breached the 100% trigger.

Rating rationale

The review addressed i) the collateral’s observed performance as of July 2023; ii) Scope’s forward-looking assumptions, which incorporate expected macroeconomic changes over the transaction’s remaining life; iii) updates to the transaction’s liability structure, liquidity and interest rate hedging; and iv) the issuer’s exposure to key transaction counterparties.

Beyond the key rating drivers addressed further below, the main analytical considerations on the transaction’s performance are:

Faster-than-expected cumulative collections (positive)¹. Gross collections have outpaced Scope’s timing assumptions under the B case at closing.

Hedging (positive)¹. Interest rate risk is mitigated by the transaction’s cap. The notional schedule of the cap is more than double the class A outstanding balance.

Low profitability of secured positions (negative)¹. Closed secured debtors account for around 39% of the transaction’s initial secured gross book value. The profitability on these debtors (80%) is below Scope’s expectations under the B case assumptions at closing.

Business plan figures revised down (negative)¹. Figures in the transaction’s original business plan have been revised down. The latest business plan has a lower lifetime recovery rate by 9% from its closing value.

Key rating drivers

The transaction’s key rating drivers are aligned with those on Scope’s last rating action release dated 6 December 2021².

Rating-change drivers

Positive. Improved profitability on secured positions coupled with a faster-than-expected collection pace could positively impact the rating.

Negative. An Italian economic slowdown driven by persistent inflationary pressures and a tighter monetary policy, combined with a deterioration of borrowers’ affordability conditions, could impair the servicer’s 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 defaulted loans.

Scope has updated its modelling assumptions to reflect the transaction’s current performance. At the B case, Scope assumed a lifetime gross recovery rate of 21% over a weighted average life of 4 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 the class A note would change compared to the assigned rating in the event of:

• 10% haircut to recoveries, zero notches;

• Longer recovery by one year, zero notches.

Rating driver references
1. Transaction documents and reporting (Confidential)
2. Rating announcement

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 this Credit Rating, (Non-Performing Loan ABS Rating Methodology, 3 August 2023; Counterparty Risk Methodology, 13 July 2023; General Structured Finance Rating Methodology, 25 January 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for this Credit Rating 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 are based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
The Credit Rating was issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Leonardo Scavo, Senior Specialist
Person responsible for approval of the Credit Rating: David Bergman, Managing Director
The Credit Rating was first released by Scope Ratings on 16 December 2019. The Credit Rating was last updated on 6 December 2021.

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.