Rating action

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

Class A (ISIN IT0005432049), EUR 39.1m: upgraded to BBB_SF from BB+_SF

Class B (ISIN IT0005432056), EUR 15.0m: not rated

Class J (ISIN IT0005432064), EUR 10.1m: not rated

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

Transaction overview

Titan SPV S.r.l. is a static cash securitisation of an Italian non-performing lease portfolio worth around EUR 335 million by gross book value (GBV) at closing. The portfolio was originated by Alba Leasing S.p.A. (57% of GBV), Release S.p.A. (26% of GBV) and Banco BPM S.p.A. (17% of GBV). The pool is serviced by Prelios Credit Servicing S.p.A. as special and master servicer. The transaction closed on 28 December 2020.

As of the June 2023 collection date, aggregate gross collections were EUR 74.7m, which represents 96.9% of the updated business plan expectations and 147.8% of the original business plan. The source of total gross collections is mostly represented by sale and rent proceeds from leased assets (87.9%), while the remainder proceeds (12.1%) stem from judicial, discounted-pay-offs (DPOs), indemnities, givebacks and other type of proceeds.

Around 74.4% of gross collections stem from open debtors (i.e. debtors whose recovery process is ongoing) while closed debtors account for 25.6% of gross collections. Since closing, Scope estimates that 12.0% of initial gross book value has been closed.

The class A note has amortised by 56.8% of its notional at closing while the reported net proceeds cumulative collection ratio and NPV profitability ratios are 193.6% and 125.5% respectively. There has been no occurrence of interest subordination event as both ratios remain above the 90.0% trigger level.

Rating rationale

The review addressed i) the collateral’s observed performance as of the July 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:

Class A amortisation (positive). Class A has materially amortised since closing, which reduces liability costs over the life of the transaction (interests and GACS fees). The current class A pool factor is 43.2%, two and a half years after closing.¹

Property sale discounts (positive). The observed average property sale discount, considering both open and closed borrowers, is 29.1% based on Scope calculations. Scope’s assumption under the BBB case is 36.6%. Commercial properties are showing a lower discount (23.5%) compared to industrial (32.9%).¹

Low profitability of secured closed positions (negative). Based on Scope calculations, closed secured debtors account for around 11.3% of the transaction’s initial secured gross book value. The profitability on these debtors, at 87.9%, is below Scope’s expectations under the B case assumptions at closing. Total gross collections from closed borrowers represent 25.6% of cumulative collections.¹

Key rating drivers

The transaction’s key rating drivers are aligned with those in Scope’s initial rating action release dated 28 December 2020 and last rating action release dated 23 June 2023.

Rating-change drivers

Positive. Consistent servicer improvement in terms of secured profitability could positively impact the rating.

Negative. Slowdown of the Italian economy driven by persistent inflationary pressures combined with tighter monetary policy, and the potential deterioration of borrowers’ affordability conditions could impair servicers’ performance on collections.²

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 also 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 49.9% over a weighted average life of 3.3 years (from its closing value of 50.4% over 4.1 years). By portfolio segment, Scope assumed a lifetime gross recovery rate of 56.4% and 4.3% for the secured and unsecured portfolios, respectively, over a weighted average life of 3.3 and 2.3 years (from their closing values of 56.5% and 6.6% over 4.3 and 7.1 years).

Sensitivity analysis

Scope tested the rating’s resilience to deviations in expected recovery rates and recovery timing. This analysis has the sole purpose of illustrating the rating’s sensitivity 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, zero notches
   
• Extending the recovery by one year, zero notches

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

Stress testing
Stress testing was performed by applying Credit-Rating-adjusted recovery rate assumptions.

Cash flow analysis
Scope performed a cash flow analysis for the transaction with the use of Scope Ratings’ Cash Flow Structured Finance Expected Loss Model Version 1.2. This incorporated the relevant asset assumptions, taking into account the transaction’s main structural features, such as the notes’ priorities of payment, 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 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://www.scoperatings.com/ratings-and-research/structured-finance/methodologies.
The model used for this Credit Rating is (Cash Flow Structured Finance Expected Loss Model Version 1.2), 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
This 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: Stefano Bracchi, Associate Analyst.
Person responsible for approval of the Credit Rating: David Bergman, Managing Director.
The Credit Rating was first released by Scope Ratings on 28 December 2020. The Credit Rating was last updated on 23 June 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. A member of the Board of Trustees of Scope Foundation has a significant relationship with Société Generale SA, a related third party to this transaction. The Scope Foundation is a 20% shareholder of Scope Management SE, the general manager of Scope SE & Co KGaA (“Scope Group”). Scope Foundation has no financial or economic interest in Scope SE & Co KGaA and the main function of the foundation is to preserve the European identity of the shareholder structure of Scope Group.

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.