Rating action

Scope Ratings GmbH (Scope) has reviewed the performance of the notes issued by Siena NPL 2018 S.r.l. The rating action is as follows:

Class A (ISIN IT0005331472), EUR 937.2m: downgraded to BB+_SF from BBB_SF

Class B (ISIN IT0005319139), EUR 896.7m: not rated

Class J (ISIN IT0005319147), EUR 565.0m: not rated

Scope’s review is based on servicer, investor and payment reporting as of the January 2024 payment date and addressees the correction of a calculation error in the rating analysis.

Transaction overview

Siena NPL 2018 S.r.l. is a static cash securitisation of a EUR 24.1bn portfolio (at closing) of Italian non-performing loans originated by Banca Monte dei Paschi di Siena S.p.A., MPS Capital Services Banca per le Imprese S.p.A. and MPS Leasing & Factoring S.p.A. (the latter currently incorporated in Banca Monte dei Paschi di Siena S.p.A.).

The portfolio is serviced by four special servicers: Special Gardant S.p.A (previously Credito Fondiario S.p.A), Italfondiario S.p.A., Cerved Credit Management S.p.A (previously Juliet S.p.A.) and Prelios Credit Servicing S.p.A.. Master Gardant S.p.A. (previously Credito Fondiario S.p.A) acts as master servicer. The transaction closed on 10 May 2018 and the legal maturity is in January 2033.

As of 30 January 2024, aggregate net collections were EUR 3,741.8m.

Rating rationale

The downgrade is prompted by (i) lower than expected performance, and (ii) the correction of a calculation error, which led to an underestimation of servicing fees.

For the review, Scope considered i) performance observed performance until the January 2024 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

The transaction’s key rating drivers are broadly aligned with those in Scope’s latest rating action release dated 4 May 2023. In particular, profitability and the timing of collections remain well below Scope’s initial expectations. The transaction is underhedged, with the cap notional being 52.6% below the class A outstanding amount.

Additional rating drivers:

Business plan update (negative)¹. The most updated version of the business plan dates back to 2019.

Indemnities (negative)¹. The master servicer has not provided updates on the indemnity process in time for the publication of this document. The magnitude of the gap between requested indemnity amount and the amount the issuer will receive at the end of the indemnity process is still uncertain.

Rating-change drivers

Positive. A sustained improvement of profitability and the timing of collections could positively impact the ratings.

Negative. Persistent negative performance could negatively impact the class A ratings.

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 25% over a weighted average life of 4.8 years (from its closing value of 35% over 4.6 years). By portfolio segment, Scope assumed a lifetime gross recovery rate of 48% and 9% for the secured and unsecured portfolios, respectively, over a weighted average life of 5.1 and 3.8 years (from their closing values of 69% and 11% over 4.6 and 4.3 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)

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

Cash flow analysis
Scope Ratings performed a cash flow analysis for the transaction using 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, 6 March 2024), 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 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. 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: Stefano Bracchi, Associate Analyst.
Person responsible for approval of the Credit Rating: Antonio Casado, Managing Director
The Credit Rating was first released by Scope Ratings on 10 May 2018. The Credit Rating was last updated on 4 May 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. 
 
Conditions of use / exclusion of liability
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