Rating action

The transaction comprises the following instruments:

Class A (ISIN IT0005387904), EUR 915.3m outstanding amount: downgraded to BBB_SF from BBB+_SF

Class B (ISIN IT0005387912), EUR 80.0m outstanding amount: affirmed at B-_SF

Class J (ISIN IT0005387920), EUR 30.0m outstanding amount: not rated

Scope’s review was based on available payment information and investor and servicer reporting as of May 2021.

Transaction overview

Prisma SPV S.r.l. is a static cash securitisation of secured and unsecured NPLs, accounting for 64.0% and 36.0% in terms of original gross book value (“GBV”). The loans were extended only to individuals. The transaction was closed on 18 October 2019 and the legal maturity is in November 2039.

Through the 5 May 2021 collection period, aggregate gross collections were EUR 620.2m, which represent 95% of the original business plan expectations of EUR 651.7m. Total available gross collections are split between judicial proceeds (55.9%), discounted pay-off (‘DPO’) proceeds (34.7%), credit sales proceeds (8.9%) and other type of collections (0.5%).

Around 20.9% of gross collections (EUR 129.8m) stem from closed debtors (2795 debtors) that represent 5.3% of total number of borrowers and whose GBV represents around 5.3% of the transaction’s initial GBV. The large majority of closed debtors’ gross collections are DPO proceeds (75.9%), while the remaining proceeds are split between judicial proceeds (17.6%) and other types of collections (6.5%).

Around 24.3% of the class A notes’ notional has amortised. As a result, class A credit enhancement relative to the portfolio’s outstanding gross book value has slightly increased to 84.9% from 80.0%.

The transaction envisages underperformance subordination events which trigger a partial deferral of servicing fees to the class B and class J principal payments. The events are triggered if the NPV profitability or the cumulative net collection ratios fall below certain thresholds.

On the third interest payment date (May 2021) a servicer underperformance event has occurred since the cumulative net collection ratio stood at 92.32%, between the 90% and 95% thresholds responsible for triggering the underperformance event. The transaction’s NPV profitability ratio was at 110.1%.

Rating rationale

The rating action is driven by the observed and expected performance of the transaction, as well as Scope’s updated modelling assumptions, which reflect the transaction’s performance and the current and developing macro-economic factors. Scope also compared the transaction’s performance to its own recovery assumptions, considering updated views on asset resolution timing, recovery estimates and macro-economic fundamentals, all developed through transaction-specific observations and benchmarking.

All counterparties continue to support the ratings, as there have not been material changes on counterparty risk since closing.

Key rating drivers

Cumulative collections compared to Scope’s expectations (positive)¹: Observed cumulative net collections have been higher than Scope original net B case scenario assumptions.

Senior notes’ liquidity protection (positive)¹: A cash reserve provides liquidity protection to senior noteholders, covering senior fees and interest on class A notes. It currently stands at EUR 36.6m (4.0% of class A notes’ principal amount as of the May 2021 payment date).

Closed debtors’ profitability computed by Scope (negative)¹: Profitability on closed borrowers (calculated as the ratio between actual collections and Scope original lifetime projections under the B rating assumptions) stands at 89%.

Italian economy (negative)²: The Italian economy faces a deep recession in the first half of 2021 fuelled by the Covid-19 pandemic. Despite governmental support measures, increased collateral liquidity risk and weakened borrower liquidity positions could negatively affect the recovery prospects.

Rating-change drivers

Positive. The termination of the suspension of foreclosure proceedings on primary homes might support a faster timing of judicial collections that could positively impact the ratings.

Negative. Servicer performance which falls short of Scope’s collection amounts and timing assumptions could negatively impact the ratings.

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. Scope assumed a 34.0% gross recovery rate over a weighted average life of 4.1 years for class A analysis, and a 37.3% gross recovery rate over a weighted average life of 3.9 years for class B analysis.

Sensitivity analysis

Scope tested the resilience of the ratings 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 change compared to the assigned rating in the event of:

• 10% haircut to recoveries, four notches decrease.
   
• a one-year recovery lag increase, one notch decrease.

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

• 10% haircut to recoveries, zero notches impact.
   
• a one-year recovery lag increase, zero notches impact.

Rating driver references
1. Transaction documents and reporting (Confidential)
2. Scope research Italy: fiscal prudence requires attention even as Draghi investment plan critical to reviving growth

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 SF EL Model Version 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 Credit Ratings, (Non-Performing Loan ABS Rating Methodology, 9 September 2020; Methodology for Counterparty Risk in Structured Finance, 13 July 2021; General Structured Finance Rating Methodology, 14 December 2020), available on https://www.scoperatings.com/#!methodology/list.
The model used for these Credit Ratings is (Cash Flow SF EL Model Version 1.1.), available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
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-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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-scale. 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://www.scoperatings.com/#!methodology/list.

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 Ratings: 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 these Credit Ratings 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. The external due diligence assessment/asset audit/internal analysis was considered when preparing the Credit Ratings and it has no impact on the Credit Ratings.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Rossella Ghidoni, Director
Person responsible for approval of the Credit Ratings: David Bergman, Managing Director
The Credit Ratings were first released by Scope Ratings on 18 October 2019. 

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
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