The rating actions are as follows:

Class A (ISIN IT0005394348), EUR 355,000,000: assigned a final rating of BBB+_SF

Class B (ISIN IT0005394355), EUR 53,000,000¹: assigned a final rating of B-_SF

Class J (ISIN IT0005394363), EUR 13,200,000: not rated

The latest information on the rating, including rating reports and related methodologies are available on this LINK.

Transaction overview

The transaction is a cash securitisation of a static Italian non-performing loan (NPL) multi-originator portfolio of EUR 1,324m by gross book value.

The portfolio was originated by 68 Italian cooperative banks (as reported in the appendix of the press release). The portfolio will be serviced by doValue S.p.A. as special servicer and Italfondiario S.p.A. as master servicer.

The pool comprises both secured (65.9%) and unsecured (44.1%) loans (including junior secured loans). The loans were extended to companies (79.3%) and individuals (20.7%). Secured loans are backed by residential and non-residential properties (43.8% and 56.2% of the total first-lien property value, respectively) that are well distributed across Italy, with similar shares in the country’s north (38.1%), centre (35.6%), and south (26.3%). The issuer acquired the portfolio at the transfer date of 2 December 2019 but is entitled to all portfolio collections received since 31 December 2018 (the portfolio cut-off date). Asset information reflects aggregation by loans and Scope’s pool adjustments, as highlighted in the section ‘quantitative analysis and key assumptions’.

A reputable auditing firm performed an audit on a sample of loans from the securitised portfolio. However, due to a standard selection performed on a random basis and given the high number of seller banks involved in the transaction, the audited sample only includes loans from around 80% of the sellers.

The structure comprises three classes of notes with fully sequential principal amortisation. Class B interest payments rank senior to class A principal. Class A and B will pay a floating rate based on six-month Euribor plus a margin of 0.3% and 6.5%, respectively. Class J principal and interest are subordinated to the repayment of the senior and mezzanine notes. Interest rate risk on the class A notes is mitigated through a hedging structure, which applies an increasing cap rate to six-month Euribor ranging from 1.3% to 3.5%. In addition, the base rate on the class A notes will be partially hedged through an interest rate cap agreement with a cap strike ranging from 0.3% to 2.5% over a pre-defined notional balance. The interest rate risk related to the class B notes is hedged by a plain vanilla interest rate cap agreements with an increasing cap strike ranging from 1% to 4% over a pre-defined notional balance. The notes have been structured in accordance with requirements under the GACS scheme, updated in 2019 .

The transaction may involve the participation of a real estate operating company.

Rating rationale

The ratings are primarily driven by the expected recovery amounts and by the timing of collections from the NPL portfolio. The recovery amounts and timing assumptions consider the portfolio’s characteristics, Scope’s economic outlook for Italy, and the assessment of the special servicers’ capabilities. The ratings consider the structural protection provided to the notes, the absence of equity leakage provisions, the liquidity protection provided by the cash reserve, and the interest rate hedging agreements.

The ratings also address the exposure to the key transaction counterparties: i) the originators/sellers, regarding representation and warranties and the eventual payments that might be made by the borrowers and limited-recourse loan providers; ii) Italfondiario S.p.A. as master servicer; iii) doValue S.p.A. as special servicer; iv) Securitisation Servicers S.p.A. as back-up master servicer, noteholders’ representative, calculation agent and corporate servicer; v) BNP Paribas Securities Services, Milan Branch as account bank, paying agent, cash manager and agent bank; vi) Zenith Service S.p.A. as monitoring agent; and vii) Banco Santander S.A. as the interest rate cap provider. The analysis also considered the replacement mechanisms available on the respective counterparty roles.

Key rating drivers

Borrowers’ granularity (positive). The portfolio is relatively granular compared to peer NPL transactions we have rated (average debtor exposure of EUR 154,000). The top 10 debtor exposures are cumulatively lower than for comparable NPL transactions, accounting for 5.2% of the portfolio’s gross book value.

Diversified geographical distribution of the collateral and multi-originator nature of the transaction (positive). The portfolio collateral is relatively highly diversified by geography. 74.1% of the first-lien portfolio is distributed among Italy’s northern and central regions (38.3% and 35.9%, respectively), which usually benefit from shorter court procedures than sourthern regions. The multi-originator nature of the transaction helps mitigate concentration risk in terms of the properties’ locations and borrowers’ exposures.

High share of senior secured loans (positive). The share of first-lien secured loans in the portfolio (65.8%) is high compared to peer transactions we have rated. First-lien secured loans have higher average recovery rates than other type of loans.

Property type (negative). The proportion of land property is higher than for other peer transactions (14.2% of total first-lien property valuations), of which only a small share comprises agricultural land, which may have limited price volatility upon liquidation.

High share of loans in bankruptcy or with no proceedings (negative). Scope expects a weighted average recovery timing of 6.9 years, which is long compared to peer transactions we have rated. The longer timing for recovery proceeds is mainly because almost 61% of the portfolio’s gross book value corresponds to loans either in bankruptcy (28.9%) or with no ongoing or non-foreclosure proceedings (31.6%). Compared with non-bankruptcy proceedings, bankruptcies typically result in lower recoveries and take longer to be resolved.

Seasoned unsecured portfolio (negative). The weighted average time since default is approximately 4.2 years for the unsecured portion. Most unsecured recoveries are realised in the first years after a default according to historical data.

Rating-change drivers

Legal costs (upside). Scope has factored in a level of legal expenses for collections as specified under the ‘Quantitative analysis and key assumptions’ section. A decrease in legal expenses compared to Scope’s initial expectations could positively affect the ratings.

Servicer outperformance regarding recovery timing (upside). Consistent servicer outperformance in terms of recovery timing could positively impact the ratings. Portfolio collections will be completed over a weighted average period of 6.9 years according to the servicer’s business plan. This is about 18 months faster than the recovery weighted timing vector applied in our analysis.

Servicer underperformance (downside). Servicer performance below Scope’s base case collection amounts and timing assumptions could negatively impact the ratings.

Fragile economic growth (downside). Recovery rates are generally highly dependent on the macroeconomic climate. If the Italian GDP medium-term growth falls below 0.7%, the level forecasted in Scope’s current outlook, ratings could be negatively impacted.

Quantitative analysis and key assumptions

Scope performed a cash flow analysis which considers the structural features of the transaction in order to calculate the expected loss and weighted average life for each tranche. As the first step, Scope analysed the assets to produce a rating-conditional cash flow projection of gross recoveries for the portfolio of defaulted loans.

Scope performed a specific analysis for the secured and unsecured exposures. For secured exposures, collection assumptions were mostly based on up-to-date property appraisal values which were stressed to account for liquidity and market value risks. Recovery timing assumptions were derived using line-by-line asset information detailing the type of legal proceeding, the court issuing the proceeding, and the stage of the proceeding at the cut-off date. For unsecured exposures, Scope used historical, line-by-line recovery data on defaulted loans between 1995 and 2017. Historical data has been used to calibrate recoveries, considering unsecured borrowers to be classified as defaulted for a weighted average of 4.2 years as of closing. Scope also analysed historical data provided by the servicer.

Scope has adjusted the pool’s gross book value using information on collections and sold properties since the 31 December 2018 cut-off date. The analysis excluded portfolio loans which we assumed to be closed, based on collections already received and cash-in-court to be received. Collateral connected with these positions was also removed. Collateral connected with these positions has also been removed. Overall, Scope’s adjustments have reduced the pool to EUR 1,280m in gross book value, by deducting the gross book value related to those loans which have been partially or totally recovered, following the presence of cash in court amounts.

For the analysis of the class A notes, Scope assumed a gross recovery rate of 40.5% over a weighted average life of 6.9 years. By segment, Scope assumed a gross recovery rate of 53.7% for the secured portfolio and of 14.9% for the unsecured portfolio. Scope has applied an average combined security value haircut of 42.1% which consists of i) an average fire-sale discount (including valuation type haircuts) of 32.7% to security valuations, reflecting liquidity or marketability risks, and ii) property price decline stresses (14% on average), reflecting Scope’s view of downside market volatility risk. Scope factored in legal expenses of 9% over gross collections, in line with average peer transaction assumptions, and the servicer’s fee structure. Scope also took into account the cost of the interest rate cap structure.

For the analysis of the class B notes, Scope assumed a gross recovery rate of 48.4% over a weighted average life of 5.8 years. By portfolio segment, Scope has assumed a gross recovery rate of 64.0% and 18.2% for the secured and unsecured portfolios, respectively.

Scope captured single asset exposure risks by applying to the 10 largest borrowers a rating-conditional recovery rate haircut of 10% in the BBB rating scenario.

Rating sensitivity

Scope tested the resilience of the ratings against deviations from the main input assumptions: recovery-rate level and recovery timing. This analysis has the sole purpose of illustrating the sensitivity of the ratings to input assumptions and it is not indicative of expected or likely scenarios.

The following shows how the results for class A change compared to the assigned credit rating in the event of:

• a decrease in secured and unsecured recovery rates by 10%, negative: one notch;
   
• an increase in the recovery lag by one year, no impact: less than one notch.

The following shows how the results for class B change compared to the assigned credit rating in the event of:

• a decrease in secured and unsecured recovery rates by 10%, no impact: less than one notch;
   
• an increase in the recovery lag by one year, no impact: less than one notch.

1 The figure was amended on 20 December 2019. In the original publication the figure was EUR 53,00,000.

Stress testing
Stress testing was performed by applying rating-adjusted recovery rate assumptions.

Cash flow analysis
Scope performed a cash flow analysis of the transaction with the use of Scope Cash Flow SF/EL Model Version 1.1.1 incorporating default and recovery rate assumptions over the portfolio’s amortisation period, 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 and an expected weighted average life for the notes.

Methodology
The methodologies used for these ratings are the Non-Performing Loan ABS Rating Methodology and the Methodology for Counterparty Risk in Structured Finance, available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please 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’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.
Scope analysts are available to discuss all the details of the rating analysis and the risks to which this transaction is exposed.

Solicitation, key sources and quality of information
The rated entity and its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: the rated entity, public domain, the rated entities’ agents, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings GmbH has received a third-party asset due diligence assessment. The external due diligence assessment was considered when preparing the ratings and it has no impact on the credit rating. Prior to the issuance of the rating, the rated entity was given the opportunity to review the rating and the principal grounds on which the credit rating is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating is issued by Scope Ratings GmbH.
Lead analyst: Martin Hartmann, Associate Director.
Person responsible for approval of the rating: David Bergman, Managing Director.
The rating was first released by Scope on 19 December 2019.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2019 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Directors: Torsten Hinrichs and Guillaume Jolivet. 

Appendix:

Originators

CREDITO COOPERATIVO RAVENNATE, FORLIVESE E IMOLESE
BANCA CRAS CREDITO COOPERATIVO TOSCANO - SIENA - SOCIETA' COOPERATIVA
ICCREA BANCAIMPRESA S.P.A.
CHIANTIBANCA
BANCA ALTA TOSCANA CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA DELLA MARCA CREDITO COOPERATIVO
BANCA DI CREDITO COOPERATIVO "G. TONIOLO" DI SAN CATALDO (CALTANISSETTA) SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO PICENA - SOCIETA' COOPERATIVA
BANCA DI FILOTTRANO - CREDITO COOPERATIVO DI FILOTTRANO E CAMERANO - SOCIETA' COOPERATIVA
BCC DI ALBA, LANGHE, ROERO E DEL CANAVESE
CENTROMARCA BANCA - CREDITO COOPERATIVO DI TREVISO, SOCIETA' COOPERATIVA PER AZIONI
BANCA DI CREDITO COOPERATIVO DI MILANO
BANCA PER LO SVILUPPO DELLA COOPERAZIONE DI CREDITO
B.C.C. DEL GARDA - BANCA DI CREDITO COOPERATIVO COLLI MORENICI DEL GARDA
BCC UMBRIA CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA DI MONASTIER E DEL SILE - CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
EMIL BANCA
RIMINIBANCA - CREDITO COOPERATIVO DI RIMINI E VALMARECCHIA - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI ROMA
CASSA RURALE - BANCA DI CREDITO COOPERATIVO DI TREVIGLIO
BANCA CENTROPADANA CREDITO COOPERATIVO
BANCA DI CREDITO COOPERATIVO DI CARATE BRIANZA
TERRE ETRUSCHE E DI MAREMMA C.C. - SOCIETA' COOPERATIVA
CASSA RURALE ED ARTIGIANA DI CANTU' BANCA DI CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA VERSILIA LUNIGIANA E GARFAGNANA - CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI RECANATI E COLMURANO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI PONTASSIEVE - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI PERGOLA - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI VENEZIA, PADOVA E ROVIGO
BANCA DI CREDITO COOPERATIVO SAN MICHELE DI CALTANISSETTA E PIETRAPERZIA
CASSA RURALE ED ARTIGIANA DI BINASCO - CREDITO COOPERATIVO SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI FANO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DELL'OGLIO E DEL SERIO - SOCIETA' COOPERATIVA
CREDITO VALDINIEVOLE BANCA DI CREDITO COOPERATIVO DI MONTECATINI TERME E BIENTINA
BANCA VALDICHIANA - CREDITO COOPERATIVO DI CHIUSI E MONTEPULCIANO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DEI COMUNI CILENTANI SOCIETA' COOPERATIVA
BANCA DEL CILENTO DI SASSANO E VALLO DI DIANO E DELLA LUCANIA - CREDITO COOPERATIVO
ICCREA BANCA S.P.A. - ISTITUTO CENTRALE DEL CREDITO COOPERATIVO
CREDITO COOP.VO ROMAGNOLO - BCC DI CESENA E GATTEO - S.C.
BANCA DI CREDITO COOPERATIVO DI BUSTO GAROLFO E BUGUGGIATE -SOCIETA' COOPERATIVA
BANCA DI FORMELLO E TREVIGNANO ROMANO DI CREDITO COOPERATIVOSOCIETA' COOPERATIVA
BANCA DEL CATANZARESE - CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA SAN FRANCESCO CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA DI RIPATRANSONE E DEL FERMANO - CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA DI PESARO CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DELL'ALTA BRIANZA
BANCA DON RIZZO - CREDITO COOPERATIVO DELLA SICILIA OCCIDENTALE - SOCIETA' COOPERATIVA
CREDITO COOPERATIVO DI CARAVAGGIO ADDA E CREMASCO - CASSA RURALE - SOCIETA' COOPERATIVA
CREDITO COOPERATIVO DI SAN CALOGERO E MAIERATO - BCC DEL VIBONESE SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI CITTANOVA - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI BUONABITACOLO SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO MUTUO SOCCORSO DI GANGI - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI BELLEGRA SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI PACHINO - SOCIETA' COOPERATIVA
CREDITO COOPERATIVO MEDIOCRATI - SOCIETA' COOPERATIVA
BANCA DI PESCIA E CASCINA - CREDITO COOPERATIVO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI MARINA DI GINOSA - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO AGRIGENTINO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO ABRUZZESE - CAPPELLE SUL TAVO SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI RIANO SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI SAN MARCO DEI CAVOTI E DEL SANNIO-CALVI
LA BCC DEL CROTONESE - CREDITO COOPERATIVO SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI FALCONARA MARITTINA - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DELL'ADRIATICO TERAMANO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI ALTOFONTE E CACCAMO - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DI SPINAZZOLA - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DELLA VALLE DEL FITALIA - SOCIETA' COOPERATIVA
BANCA DI CREDITO COOPERATIVO DELLA VALLE DEL TRIGNO - SOCIETA' COOPERATIVA