Rating action

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

Class A (ISIN IT0005449902): EUR 160.95m: upgraded to BBB+_SF from BBB_SF

Class B (ISIN IT0005449910): EUR 42.0m: not rated

Class J (ISIN IT0005449928): EUR 12.0m: not rated

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

Transaction overview

Aurelia SPV S.r.l. is a static cash securitisation of an Italian non-performing loan portfolio worth around EUR 1,510m by gross book value at closing. The portfolio was originated by Banco BPM S.p.A.. The special servicer is Gardant Liberty Servicing S.p.A. (formerly Credito Fondiario Liberty S.p.A.). The master servicer is Master Gardant S.p.A. (formerly Credito Fondiario S.p.A.). The transaction closed on 22 June 2021.

Gross collections amount to EUR 229.1m as of the January 2024 payment date and are mostly from judicial proceeds (47%) and discounted payoffs (44.5%). The remaining collections stem from credit sales (1.7%) and other types of proceeds (6.9%).

About 37.1% of gross collections (EUR 85m) are from closed debtors (i.e. debtors whose recovery process is complete). Out of this subset of collections, most were obtained through DPOs (73.4%). Since closing, Scope estimates that 10.6% of the initial gross book value has been closed.

Since closing, the class A note has amortised by 53% of its notional while the class B note is yet to amortise. The reported cumulative collection and net present value profitability ratios are 189% and 131.6% respectively as of January 2024. No interest subordination events have occurred so far as both ratios have remained above the 90% trigger.

Rating rationale

The review addressed i) the collateral’s observed performance as of January 2024; 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:

High profitability of secured positions (positive).¹ Closed secured debtors account for around 6.7% of the transaction’s initial secured gross book value. The profitability on these debtors (107.4%) is above Scope’s expectations under the B case assumptions at closing.

Faster-than-expected cumulative collections (positive).¹ Net collections totalling EUR 217.6m have outpaced Scope’s timing assumptions under the B case at closing. Based on the servicer’s business plan, aggregate net collections are 189% of the original cumulative net expectations.

Low recovery expenses (positive).¹ Cumulative recovery expenses, at 5% of cumulative gross collections, are well below Scope’s lifetime assumption of 9%.

Hedging (positive).¹ Interest rate risk is mitigated by the transaction’s cap spread. The notional schedule of the cap spread is well above Scope’s expected amortisation of the class A note under the updated assumptions. The class A Euribor component also embeds a cap following the upper bound of the cap spread until the note’s maturity. The class B Euribor component is also subordinated after the full repayment of class A.

Business plan figures revised down (negative).¹ Figures in the transaction’s original business plan have been revised down. The latest business plan (December 2023 cut-off date) has a lower lifetime recovery rate by 7.6%% from its closing value.

Sales data (negative).¹ Collateral sales data was only available until February 2023 and Scope was only partially able to analyse the data due to data limitations. The observed average property sale discount, considering both open and closed borrowers, is 44.7% based on Scope calculations. This is above Scope’s B case assumptions at closing.

Status of indemnifications (negative).¹ Claims to the originator in an amount of 24.6m EUR were submitted within the contractual deadline, which expired in December 2022. No collections for indemnifications were received in 2023 and no updates on the status of indemnifications was available.

Key rating drivers

The transaction’s key rating drivers are aligned with those on Scope’s initial rating action release dated 22 June 2021.²

The transaction continues to exhibit a good collateral performance reflected in the fast pace of the collections as well as the profitability of the closed borrowers over the initial expectations.

Rating-change drivers

Positive. Consistent performance 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.³

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 36.8% over a weighted average life of 3.8 years (from its closing value of 37.7% over 5.7 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, minus one notch;
   
• Longer recovery by one year, zero notches

References
1. Transaction documents and reporting Confidential
2. Rating Action Release (Closing)
3. Scope research

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 these Credit Ratings 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: Martin Hartmann, Director
Person responsible for approval of the Credit Rating: Antonio Casado, Managing Director
The Credit Rating was first released by Scope Ratings on 22 June 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
© 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.