Rating action

Scope Ratings GmbH (Scope) has taken the following rating action on the class A notes issued by Capella Financing S.à r.l:

Class A (ISIN XS2590244807): EUR 67.3m outstanding: upgraded to A-_SF from BBB_SF

Class B (ISIN XS2590245101): EUR 114.5m outstanding: not rated

Class Z (ISIN XS2590247735): EUR 443.0m outstanding: not rated

Transaction overview

The transaction is a static cash securitisation of a Cypriot non-performing loans (NPLs) and real estate owned (REO) properties portfolio with a total value of EUR 1.17bn (total adjusted exposure of NPLs and appraised value of REO properties) at closing. The securitised pool was mostly composed of senior secured loans (75% of exposure), primarily backed by a mix of residential real estate assets and land (55% and 25% of appraised property value, respectively). The transaction closed on 31 March 2023 and the legal maturity is January 2054.

The transaction is not a true sale of receivables to Capella Financing S.à r.l (issuer) and implements a two-tier structure for the management of the portfolio. The CyCAC holds the credit rights over the loans and REO Companies (REOCOs), with security rights over the REO assets. The issuer subscribes to an intercompany loan issued by the CyCAC, structured to allow cash flow from the assets, less certain costs and expenses of the CyCAC, to flow into the issuer’s accounts. These are then used as available funds in the issuer level waterfall to repay the issuer’s liabilities.

The structure comprises three classes of sequentially amortising notes. The class A will pay a fixed rate of 3.5%. Class B will pay a fixed rate of 6.75% and class Z will pay a fixed rate of 8% plus a variable return. Interests on the class B are deferrable.

The transaction is serviced by Themis Portfolio Management Limited. Hellenic Bank PCL acts as CyCAC Cypriot Account Bank and Citibank N.A. acts as CyCAC and issuer’s account bank and paying agent.

Rating rationale

The rating action follows: i) the periodic re-assessment of the transaction´s initial key rating drivers, ii) a review of its key model assumptions, considering the observed performance of the collateral and Scope’s economic outlook, and iii) any material changes to the key transaction features (portfolio composition, structural features, counterparties).

The rating upgrade has been primarily driven by a significant overperformance in the timing of collections compared to Scope’s initial assumptions. This is reflected in a fast amortisation of the class A notes and continued improvement in the coverage ratios of remaining gross collections to notes’ outstanding balance.

The class A notes’ current rating is two notches above the rating assigned at closing on 31 March 2023.

Key rating drivers

Key rating drivers remain aligned with those disclosed in Scope’s initial rating action release dated 31 March 2023. The class A notes assigned rating deviates from the CFM base case result. The deviation is driven by limited performance history of the transaction, uncertainty regarding future recovery strategies, and concentration risk. None of the key rating drivers are ESG related.

Key CFM assumptions

• Rating-conditional lifetime gross recovery rates.
   
• Rating-conditional recovery timing.

Updates to the key assumption levels and to other relevant CFM parameters are provided under the section ‘Quantitative analysis’.

Key performance metrics

The transaction has significantly deleveraged in a relative short timeframe, with the current class A notes pool factor at 29%, resulting in reduced future senior costs.

As of the January 2025 payment date, reported aggregate gross collections totaled EUR 141.9m, primarily consisting of cash collections (84%), with the remaining 16% coming from REO sales proceeds. Based on Scope calculations, profitability on secured closed borrowers is at 98% of Scope initial B case assumptions. Observed REO sales discounts are below Scope’s initial expectations. The servicer revised its original lifetime gross collections estimate downwards by 7.6% in the most recent update of its business plan.

Key data sources

Scope’s review was based on servicer and investor reporting as of January 2025 payment date. Scope also considered the macro-economic and NPL sector context reflected in Scope’s 2025 structured finance outlook.

Relevant changes to key transaction features

Relative to closing, the structure has strengthened significantly, reflected in an improvement of gross coverage ratio (computed as the quotient of expected recoveries and senior notes outstanding principal amount) to 329% from 249% at B case. The servicer’s net cumulative collection ratio is currently 68.8%, below the 85% subordination threshold of the class B interest payment.

In December 2023, the previous servicer, APS Debt Servicing Cyprus Ltd, merged with Themis Portfolio Management Limited, which is now the current servicer. There have been no other changes to the transaction’s counterparties and no significant changes to Scope’s assessment of counterparty risk.

Rating-change drivers

A change to the transaction’s key CFM assumptions based on observed performance or new data sources, significant changes to the transaction’s collateral and structural features, and a change in Scope’s credit views regarding the transaction’s key rating drivers could impact the rating.

The ‘Sensitivity analysis’ section below provides an indication of the impact of variations in Key CFM Parameters on the CFM quantitative results.

Sensitivity analysis

Scope tested the resilience of the credit rating against deviations in Key CFM Parameters. All else equal, the following analysis has the sole purpose of illustrating the sensitivity of the credit rating to such parameters and is not indicative of expected or likely scenarios.

Class A notes:

• 10% haircut to recoveries: zero notches.
   
• Extending the recovery by one year: zero notches.

Quantitative analysis

This section provides non-exhaustive list of relevant CFM parameters, and how they compare to those applied at the initial/previous rating assignment:

• Lifetime recovery rate at B case is 27.9% (at closing it was 26.2%) over a weighted average life of 3.2 years (at closing it was 4.4 years).

• Recovery expenses: 12% of expected gross recoveries (same as closing).

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 relevant asset assumptions and taking into account the transaction’s main structural features, such as the instruments’ priority of payments, the instruments’ 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, 13 February 2025), 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: Leonardo Scavo, Associate Director
Person responsible for approval of the Credit Rating: Paula Lichtensztein, Senior Representative
The Credit Rating was first released by Scope Ratings on 31 March 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, 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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