Rating action

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

Class A (ISIN IT0005360158): EUR 431.7m: downgraded to CCC_SF from BB-_SF

Class B (ISIN IT0005360174), EUR 221.5m: not rated

Class J (ISIN IT0005360182), EUR 248.8m: not rated

Scope’s review was based on servicer, investor and payment reporting as of July 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 7,385m. The portfolio was originated by Banco BPM S.p.A. The portfolio is serviced by Special Gardant S.p.A. (formerly known as Credito Fondiario S.p.A.) as Special Servicer and Master Gardant S.p.A (formerly known as Credito Fondiario S.p.A) as Master Servicer. The transaction closed on 6 February 2019 and its final maturity is in July 2040.

As of the July 2024 payment date, aggregate gross collections stood at EUR 1,410m (including collections at closing), representing 69.1% of the original business plan expectation up to such date. The sources of total gross collections are judicial proceeds (47.1%), discounted pay-off (DPO) proceeds (37.8%), note sales (12.8%) and others (2.3%).

About 47.8% of gross collections (EUR 674.4m) came from closed debtors (i.e. debtors for which the recovery process is completed). Since closing, Scope estimates 24.6% of initial gross book value has been closed.

70% of the class A notes’ notional has amortised since closing. The last business plan (updated in 2024) reports lifetime expected gross recoveries which are 17.4% lower than the original business plan forecast. The net present value cumulative profitability ratio, computed for closed positions, stands at 93.3%, while the net proceeds cumulative collection ratio stands at 70.5%, which is above the 70% 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 July 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 include a significant shortfall in cumulative net collections relative to business plan and Scope’s initial expectations, and weaker than expected profitability on closed positions relative to Scope’s initial expectations and to peer transactions. These drivers, among others listed below, are aligned with those already disclosed in Scope’s initial rating action release dated 8 February 2019 and the rating action release dated 11 November 2022, but the magnitude of the shortfalls has widened and Scope does no longer consider that a significant reverse in trend is possible. The current rating action specifically took into account the following factors:

Weak profitability¹ (negative). Based on Scope calculations, profitability on secured closed positions is 20.3% below Scope’s expectation under the B case assumptions at closing. Scope has not been able to perform collateral sales analysis due to restricted sales data during the review.

Cumulative net collections consistently below servicer expectations (negative).¹ Observed cumulative collections are below the original business plan expectations. The servicer’s cumulative collection ratio is currently 70.5%, comparing the last 6 months of collections to the last updated business plan, the servicer is underperforming by 20.7%.

Class B interest subordination event (negative).¹ The cumulative collection ratio is leveling only slightly above the class B subordination threshold for already six interest payment dates supported by more frontloaded collections stemming from note sales and discounted payoffs. Whereas a short-term hit is possible, this is very unlikely to be sustainable. This would only be triggered by a significant deterioration of expected cumulative remaining collections by either amount or timing. Interest of Class B is expected to continue to be paid senior to the principal of Class A notes reducing the funds available to repay the Class A principal over time.

Cashflow Model results (negative). Class A is not expected to be repaid under Scope’s updated modelling assumptions as well as under the updated business plan remaining proceeds as continuous payment of class B coupon erodes available funds for class A principal payment.

Rating-change drivers

Positive. Improving performance on closed borrowers’ profitability coupled with faster than expected collections could positively impact the ratings.

Negative. The timing of collections shows a negative trend. A continuous downward trend in the pace of collections could negatively affect 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 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 28.3% over a remaining weighted average life of 2.6 years. By portfolio segment, Scope assumed a lifetime gross recovery rate of 40.4% and 15.9% for the secured and unsecured portfolios, respectively.

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, zero notches;
   
• a one-year recovery lag increase, 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 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 2024; 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 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: 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 6 February 2019. The Credit Rating was last updated on 12 October 2023.
*. To comply with Scope’s analyst rotation requirements, a rating committee with a new voting quorum and Benoit Vasseur as PACR was convened on 7 November 2024. The rating committee conclusion remained unchanged from the previous committee.

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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