Rating action

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

Class A (ISIN IT0005351330): EUR 269.5m: downgraded to B-_SF from B+_SF

Class B (ISIN IT0005351348): EUR 62.9m: not rated

Class J (ISIN IT0005351355): EUR 10.9m: not rated

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

Transaction overview

Aqui SPV S.r.l. is a static cash securitisation of secured and unsecured non-performing loans extended to companies and individuals in Italy worth EUR 2,082 million by gross book value (GBV) at closing. The portfolio was originated by BPER Banca S.p.A, Cassa di Risparmio di BRA S.p.A and Cassa di Risparmio di Saluzzo S.p.A. (currently both merged in BPER Banca S.p.A) and is serviced by Prelios Credit Services S.p.A. as master and special servicer. The transaction closed on 7 November 2018 and its final maturity is in October 2038.

As of the September 2023 collection date, aggregate gross collections were EUR 393.7m (gross of collections at closing and net of indemnities on the portfolio “sample”), which represents 60.9% of the last updated business plan expectations and 48.7% of the original business plan. Total gross collections are split between judicial proceeds (49.7%), discounted payoff proceeds (26.1%), credit sale proceeds (16.6%), indemnity proceeds (6.5%) and other types of collections (1.1%).

The servicer revises the business plan on an annual basis. The last updated business plan reported expected gross recoveries to be 20.0% lower than the original business plan and an increase in the expected collection weighted average life from 4.3 to 4.7 years. The net present value cumulative profitability ratio, computed for closed positions, stands at 103.8%, while the cumulative collection ratio stands at 74.7%, respectively down from the previous collections period, respectively 104.4% and 84.1%.

Rating rationale

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

The transaction’s key rating drivers are aligned with those in Scope’s initial rating action release dated 7 November 2018 and last rating action release dated 23 June 2023. In particular, timing of collections remains well below Scope’s initial expectations. In addition, we have considered a new key rating driver related to the high property sale discounts registered.

High property sale discounts (negative): The current average property sale discount from judicial proceedings, according to Scope calculation, is considerably higher compared to the average Scope fires sale discount applied at closing, 56.4% and 25.3% respectively. Residential properties are showing a lower discount (50%) compared to commercial (59.5%), industrial (64.0%) and land (72.0%)¹.

Rating-change drivers

Positive. Improving servicer performance, amounts and timing, could positively impact the ratings.

Negative. Further deterioration on property sale prices 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 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. For the B case, Scope assumed a lifetime gross recovery rate of 35.3% over a residual weighted average life of 6.1 years (from its closing value of 45.8% over 5.2 years). By portfolio segment, Scope assumed a lifetime gross recovery rate of 52.4% and 13.9% for the secured and unsecured portfolios, respectively, over a residual weighted average life of 6.1 for both segments (from its closing value of 64.3% and 15.4% for secured and unsecured respectively over 5.3 years and 3.8 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, minus two notches
   
• Longer recovery by one year, minus one notch

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: Davide Nesa, Director.
Person responsible for approval of the Credit Rating: Antonio Casado, Managing Director
The Credit Rating was first released by Scope Ratings on 7 November 2018. 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.

Conditions of use / exclusion of liability
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