Rating action

Scope Ratings GmbH (Scope) has completed a monitoring review of the following notes issued by Ortles 21 S.r.l.:

Class A (ISIN IT0005473464): EUR 245.3m: downgraded to BBB-_SF from BBB_SF

Class B (ISIN IT0005473563), EUR 40.0m: not rated

Class J (ISIN IT0005473571), EUR 14.3m: not rated

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

Transaction overview

The transaction is a static cash securitisation of an Italian non-performing loan (NPL) portfolio with a gross book value (GBV) of around EUR 1,834m. The portfolio was originated by Crédit Agricole Italia S.p.A., Crédit Agricole FriulAdria S.p.A. and Credito Valtellinese S.p.A. (now both incorporated into Crédit Agricole Italia S.p.A.). The portfolio is serviced by doValue S.p.A. and Cerved Credit Management S.p.A. as special servicers and by doValue S.p.A. (formerly Italfondiario S.p.A.) as master servicer. The transaction closed on 17 December 2021 and the legal maturity is October 2045. Scope does not rate the class B and J notes.

As of the April 2024 payment date, aggregate gross collections stood at EUR 203.7m, representing 181.9% of the original business plan expectation up to such date. The sources of total gross collections are discounted pay-off (DPO) proceeds (50.8%), judicial proceeds (34.8%) and others (14.4%).

About 18.6% of gross collections (EUR 69.4m) came from closed debtors (i.e. debtors for which the recovery process is completed). Since closing, Scope estimates 11% of initial gross book value has been closed.

50.2% of the class A notes’ notional has amortised since closing. The last business plan (updated in 2024) reports lifetime expected gross recoveries which are 9.6% lower than the original business plan forecast. The net present value cumulative profitability ratio, computed for closed positions, stands at 127.3%, while the net proceeds cumulative collection ratio stands at 184.1%, 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 April 2024 payment date; ii) Scope’s forward-looking assumptions, which incorporate expected macroeconomic conditions 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 December 17, 2021. The current rating action is mainly driven by the following factors:

Weak profitability¹ (negative). Profitability on closed borrowers has worsened since our previous monitoring review in October 2023 by 7 percentage points, to 90% from 97%. Scope did not receive data of assets sold in auctions, so it was not possible to compute the observed discount on sold assets.

Business plan review¹ (negative). As per the latest update to the servicer business plan, received on 30 May 2024, expected lifetime gross proceeds have been revised downwards by 9.6%, consistent with the weak profitability observed to date. This is only partially mitigated by the faster pace of collections relative to both the servicer’s and Scope’s initial expectations.

Rating-change drivers

Positive. An improvement in profitability ratified by the availability of sale data and/or observed profitability on closed positions could positively impact the rating.

Negative. A further deterioration in transaction’s profitability, unavailability of sold assets data or high discounts observed on them, and a slowdown in the pace of collections could negatively impact the rating of the notes.

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 26.9% over a weighted average life of 4.0 years (from its closing value of 24.7% over 6.5 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 class A notes would change compared to the assigned rating in the event of:

• 10% haircut to recoveries, minus two notches;
   
• a one-year recovery lag increase, minus 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 Model Version 2.0 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, 2 August 2024; Counterparty Risk Methodology, 10 July 2027; General Structured Finance Rating Methodology, 6 March 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for this Credit Rating is (Cash Flow Structured Finance Model Version 2.0), 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 at closing. 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: Stefano Bracchi, Specialist
Person responsible for approval of the Credit Rating: Antonio Casado, Managing Director
The Credit Rating was first released by Scope Ratings on 17 December 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, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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