Red Sea SPV S.r.l. is a static cash securitisation of a EUR 5,097m portfolio (as of closing) of Italian non-performing loans. The portfolio was originated by Banco BPM and Banca Popolare di Milano, both part of the Banco BPM Group and is serviced by Prelios Credit Servicing S.p.A. The transaction closed on 15 June 2018 and has a final maturity in October 2038.

On July 4th, Red Sea SPV S.r.l. has implemented a real estate operating company (ReoCo) structure, according to the provisions of article 7.1 paragraph 4 of Law 130 of 1999. Prelios S.p.A. has been appointed as the ReoCo servicer.

The main purpose of the ReoCo is to encourage third-party acquisitions above auction base prices or to repossess real-estate assets at otherwise empty auctions and re-sell them at better prices in the open market. The implementation of the ReoCo structure could be positive as it might increase recovery rates. However, ReoCo structural fees and costs as well as repayment of third-party financing ranks senior to the repayment of assumed debt towards the issuer. Therefore, the benefit of the ReoCo implementation will largely depend on the ability of the ReoCo servicer to sell purchased properties at higher prices than would have been realised at auctions.

The overall amount of debt assumed by the ReoCo will be limited to EUR 50m on a revolving basis. This means that after an asset is sold, even if sold at a loss, the total allowable exposure will not be reduced.

The ReoCo activity will be financed through a loan provided by Prelios Credit Servicing S.p.A., currently the servicer of the transaction. This financing will cover costs related to auction deposits, the ReoCo’s operating costs and properties’ maintenance costs.

Scope’s analysis only covers the credit impact associated with the ReoCo structure described above. Scope Ratings has not addressed other non-credit related effects that may be relevant for investors and/or counterparties when assessing the impact of said implementation.

This announcement does not constitute a rating action nor indicates the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.