Rating action

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

Class A (ISIN IT0005494221): EUR 40.5m: upgraded to BBB+_SF from BBB_SF

Class B (ISIN IT0005494247): EUR 24.0m: not rated

Class J (ISIN IT0005494254): EUR 6.0m: not rated

Scope’s review was based on servicer, investor and payment reporting as of January 2024 payment date.

Transaction overview

Itaca SPV S.r.l. is a static cash securitisation of an Italian NPL portfolio with a gross book value of around EUR 1,128m. The portfolio was originated by Unicredit S.p.A. and is serviced by doValue S.p.A. and doNext S.p.A., as special and master servicer. The transaction closed on 6 May 2022 and the legal maturity is July 2045.

As of the January 2024 payment date, aggregate gross collections were EUR 116.8m, which represents 421.8% of the original business plan expectations.

Around 38.0% of gross collections (EUR 44.4m) stems from closed debtors. Gross collections linked to closed debtors are split across discounted payoff proceeds (92.0%) and judicial proceeds (8.0%). According to Scope’s analysis, closed debtors account for around 11.5% of the transaction’s initial GBV.

The net present value cumulative profitability ratio, computed for closed positions, stands at 137.9%, while the cumulative collection ratio stands at 444.2%, which is above the 90% threshold for class B interest subordination to class A principal repayment.

Rating rationale

The review addressed i) the collateral’s observed performance as of the January 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.

Key rating drivers

Key rating drivers remain broadly aligned with those disclosed in Scope’s initial rating action release dated May 6, 2022. The current rating action is also driven by the following performance metrics, which have a net positive impact:

Fast pace of collections¹ (positive). The transaction has significantly outperformed Scope’s expectations in terms of collections timing. Aggregate collections to date are 290% above Scope’s expectations under the B case scenario at closing. The fast pace of collections has resulted in a significant deleveraging of the senior notes. Class A notes have amortised by 67.6% after only three interest payment dates.

Profitability¹ (negative). Profitability on secured closed positions is 15.2% below Scope’s expectation under the B case assumptions at closing. Uncertainty around lifetime profitability is high. So far, we believe that low profitability has been partly driven by a significant share of collections coming from DPOs.

Rating-change drivers

Positive. Consistent servicer performance in terms of pace of collections and secured profitability could positively impact the rating. However, the size of the liquidity reserve is relatively small compared to transaction peers and could potentially constrain the rating below the A category. Based on Scope’s calculations, the estimated liquidity coverage is of approximately six months. An upgrade could be also conditional on the availability of statistically significant asset sales data supporting profitability assumptions.

Negative. A further deterioration in transaction’s profitability, or a sudden slowdown in the pace of collections could negatively impact 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 recovery rate of 26.3% over a weighted average life of 4.4 years (from its closing value of 25.7% over 5.8 years). By portfolio segment, Scope assumed a secured recovery rate of 62.5% from its closing value of 66.3% and an unsecured recovery rate of 11.7% from 9.3% assumed at closing.

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, zero 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 Structured Finance Expected Loss Model Version 1.2 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 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 1.2), 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 the 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/asset audit. The external due diligence assessment/asset audit 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 is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Elom Kwamin, Analyst
Person responsible for approval of the Credit Rating: Antonio Casado, Managing Director
The Credit Rating was first released by Scope Ratings on 6 May 2022. The Credit Rating was last updated on 29 January 2024.

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
© 2024 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.