Rating action

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

Class A (ISIN IT0005357360), EUR 320m original balance, EUR 220.6m current balance: downgraded to CCC_SF from B_SF

Class B (ISIN IT0005357386), EUR 70m original balance, EUR 70m current balance: not rated

Class J (ISIN IT0005357394), EUR 95m original balance, EUR 95m current balance: not rated

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

Transaction overview

Belvedere SPV S.r.l. is a static cash securitisation of an Italian non-performing loan (NPL) portfolio worth around EUR 2,541m by gross book value. The portfolio was initially purchased from various Italian banks by several special purpose vehicles managed by Bayview Italia S.r.l and then sold to the issuer, Belvedere SPV S.r.l. The portfolio is currently serviced by Bayview Italia 106 S.p.A. (BVI) as special servicer and Prelios Credit Servicing S.p.A. (Prelios) as master and special servicer. The transaction closed on December 2018 and the legal maturity of the notes is in December 2038.

Aggregate gross and net collections amount to EUR 183.8m and EUR 166.2m, respectively. Total gross collections are split between judicial proceeds (76.1%), discounted pay-off proceeds (18.7%), credit sales proceeds (2.1%) and other sources of collections (3.1%). Aggregate gross collections as of May 2023 are 52% below the original servicers’ expectations.

Since closing, the class A note has amortised by 31% of its notional. The reported cumulative collection ratio and NPV cumulative profitability ratio are, respectively, 60.5% and 91.4% for BVI, and 26.8% and 117.5% for Prelios.

Rating rationale

The review addressed i) the collateral’s observed performance as of June 2023 payment date; 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:

Slower-than-expected cumulative collections (negative)¹. Realised gross collections of 183.8m, as of June 2023, are 27% below Scope’s B case assumption at closing.

Lower profitability of secured positions (negative)¹. Assets have been sold in auction at an average discount of 50% considering valuations provided at closing or the CTU. Such discount is higher than average Scope’s B case assumption of 16% at closing. Closed secured debtors account for around 14% of the transaction’s initial secured gross book value. The profitability on these debtors (79%) is below Scope’s expectations under the B case assumptions at closing.

Hedging (negative)¹. Interest rate risk is only partially mitigated by the transaction’s cap. The notional schedule of the cap is partially aligned with Scope’s expected amortisation of the class A note under the updated assumptions.

Outdated business plan (negative)¹. Lifetime recoveries were revised down by around 15% on December 2021. An updated business plan has not been approved by the monitoring agent and the investor committee since then, even though current collection volumes remain significantly below the 2021 updated business plan.

Key rating drivers

The transaction’s key rating drivers are aligned with those on Scope’s initial rating action release dated December 21, 2018.

Rating-change drivers

Positive. Improvement in pace of collections could positively impact the rating.

Negative. Continuous underperformance of closed positions against Scope expectations could negatively affect 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 16.5% over a residual weighted average life of 5.7 years (from its closing value of 23% over 6 years). By portfolio segment, Scope assumed a lifetime gross recovery rate of 33.0% and 5.1% for the secured and unsecured portfolios, respectively, over a residual weighted average life of 5.8 and 5.2 years (from its closing value of 43.8% and 8.4% for respectively secured and unsecured, over 6.5 years and 3.9 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 one notch
   
• Longer recovery by one year, zero notches

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 Structured Finance Expected Loss 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 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, 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 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/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 Rating is UK-endorsed.
Lead analyst: Leonardo Scavo, Senior Specialist.
Person responsible for approval of the Credit Ratings: Antonio Casado, Executive Director
The Credit Rating was first released by Scope Ratings on 21 December 2018. The Credit Rating was last updated on 10 November 2022.
 
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, 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.