Scope downgrades class A notes of BCC NPLs 2019 S.r.l. - Italian NPL ABS
The transaction comprises the following instruments:
Class A (ISIN IT0005394348): EUR 283.3m current balance: downgraded to BB+SF from BBBSF
Class B (ISIN IT0005394355): EUR 53.0m current balance: affirmed at CCCSF
Class J (ISIN IT0005394363): EUR 13.2m current balance: not rated
Scope’s review was based on servicer, investor and payment reporting as of the July 2022 payment date.
BCC NPLs 2019 S.r.l. is a static cash securitisation of secured and unsecured non-performing loans (NPLs) worth EUR 1,324 million by gross book value (‘GBV’) at closing. The portfolio was originated by 68 Italian banks, with doValue S.p.A. performing the role of special servicer and Italfondiario S.p.A. the role of master servicer. The transaction closed on 19 December 2019.
As of July 2022, aggregate gross collections were EUR 127.2m, which represent 94% of the original business plan expectations of EUR 134.9m. Total gross collections are split between judicial proceeds (39%), discounted payoff (‘DPO’) proceeds (35%), credit sales proceeds (17%) and other types of collections (9%).
Around 90% of gross collections (EUR 114.6m) stem from open debtors (i.e., debtors for which the recovery process is still ongoing), while closed debtors account for 10% of gross collections (EUR 12.6m). Gross collections linked to closed debtors are split between DPO proceeds (69%), judicial proceeds (3%) and other types of collection (28%).
In January 2022, the servicer reviewed downward the transaction’s original business plan. The lifetime business plan gross projections have been reduced by ca. 7.9%.
Interests on class B are subordinated to payment of class A principal if the net cumulative collection ratio falls below 90% of the servicers’ business plan target or the NPV profitability ratio falls below 90%. As per last investor report dated July 2022, no class B interest subordination occurred as the net cumulative collection ratio and the NPV profitability ratio stands at 91.8% and 108.3%, respectively.
The ratings are driven by the transaction’s actual and expected performance as reflected in Scope’s modelling assumptions. Profitability is below Scope’s expectations, driving the class A notes rating downgrade. Scope has updated its recovery estimates assumptions considering the transaction-specific performance, developments in macroeconomic fundamentals, and peer transaction benchmarks.
The ratings consider the issuer’s exposure to key counterparties.
Key rating drivers
Timing of collections (positive)1: The pace of collections has been faster than expected by Scope at closing. Higher than expected cumulative collections partially mitigate concerns around weak profitability.
Secured closed debtors’ profitability (negative)1: Profitability on secured closed borrowers is 25% lower than Scope´s expectations for the B case scenario. Based on Scope analysis, the share of secured closed borrowers represents around 3% of the initial secured GBV.
Positive. Improving performance on closed borrowers’ profitability, could positively impact the ratings.
Negative. If servicer performance falls short of Scope’s collection amounts and timing assumptions, this could negatively impact the ratings.
Quantitative analysis and assumptions
Scope analysed cash flows reflecting the transaction’s structural features to calculate each tranche’s conditional 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. Under class A analysis, Scope assumed a lifetime gross recovery rate of 41.0% over a remaining weighted average life of 3.9 years. By portfolio segment, Scope assumed a lifetime gross recovery rate of 54.6% and 14.6% for the secured and unsecured portfolios, respectively.
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 ratings 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, minus 2 notches;
- a one-year recovery lag increase, 0 notches.
The following shows how the results for class B notes change compared to the assigned rating in the event of:
10% haircut to recoveries, minus 1 notch;
- a one-year recovery lag increase, 0 notches.
Rating driver references
1. Transaction documents and reporting (Confidential)
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 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 and an expected weighted average life for the notes.
The methodologies used for these Credit Ratings, (Non-Performing Loan ABS Rating Methodology, 5 August 2022; Counterparty Risk Methodology, 14 July 2022; General Structured Finance Rating Methodology, 17 December 2021), are available on https://www.scoperatings.com/ratings-and-research/structured-finance/methodologies.
The model used for these Credit Ratings is (Scope Ratings’ Cash Flow SF EL Model Version 1.1), available in Scope Ratings’ list of models, published under https://www.scoperatings.com/ratings-and-research/structured-finance/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-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/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-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/ratings-and-research/structured-finance/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 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 the 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 at closing. 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.
The 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: Leonardo Scavo, Senior Specialist
Person responsible for approval of the Credit Ratings: Antonio Casado, Executive Director
The Credit Ratings were first released by Scope Ratings on 19 December 2019. The Credit Ratings were last updated on 16 December 2021.
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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