Rating action

Scope has completed a monitoring review of the following notes issued by Maior SPV S.r.l.:

Class A (ISIN IT0005341125): EUR 308.2m: downgraded to BBB-_SF from BBB_SF

Class B (ISINIT0005341133): EUR 60.0m: not rated

Class J (ISINIT0005341141): EUR 26.9m: not rated

Scope’s review was based on servicer, investor and payment reporting as of January 2023 payment date.

Transaction overview

Maior SPV S.r.l. is a static cash securitisation of a EUR 2.7bn portfolio by original gross book value (GBV) at closing of Italian non-performing loans originated by Unione di Banche Italiane S.p.A and IW Bank S.p.A. and serviced by Prelios Credit Servicing S.p.A. The transaction was closed on 1 August 2018. Scope does not rate class B and class J notes.

Aggregate gross collections stood at EUR 444.9m as of December 2022, representing 64.1% of the original business plan expectations up to such date. The sources of total gross collections are judicial proceeds (57.8%), discounted pay-off (DPO) proceeds (24.5%), credit sales proceeds (13.7%) and other sources of collections (4.0%).

About 49.2% of gross collections (EUR 218.7m) came from closed debtors (i.e., debtors for which the recovery process is completed). Since closing, Scope estimates 22.9% of initial gross book value has been closed. Collections from closed debtors stem from judicial proceeds (40.9%), discounted pay-off (DPO) proceeds (36.4%), credit sales proceeds (19.0%) and other sources of collections (3.7%).

51.0% of the class A notes’ notional has amortised. Interest on class B notes have been subordinated to the payment of class A principal as the cumulative collection ratio is currently below the 90% subordination threshold. The reported net proceeds cumulative collection ratio and NPV profitability ratios are 62.5% and 102.6% respectively. Unpaid class B and J interests amount to EUR 5.4m and EUR 12.3m respectively.

Rating rationale

Key rating drivers continue to be aligned with those disclosed on our initial rating action release, dated August 1, 2018. Specific rating factors assessed during the monitoring review include realised profitability on closed positions, the timing of cumulative collections and the amount of recovery expenses, against Scope’s expectations. The review also addressed the risk of a slowdown of the Italian economy driven by persistent inflationary pressures combined with tighter monetary policy, and the potential deterioration of liquidity conditions which could impair servicers’ performance on collections. The rating also consider the issuers’ exposure to key counterparties, the legal and structural protection provided to the notes, the liquidity protection and the interest rate hedging agreements.

Rating factors

Cumulative net collections (negative)¹. Aggregate gross and net collections amount to EUR 444.9m and EUR 393.6m, respectively. Compared to Scope’s base case, aggregate net collections have underperformed in terms of timing and amount. Additionally, the aggregate net collections have underperformed relative to the initial servicer’s business plan with a cumulative collection ratio of 62.5%, triggering a class B interest subordination. 

Low profitability of closed positions (negative)¹. Gross collections from closed borrowers are 49.2% of cumulative collections and were mainly obtained through judicial procedures (40.9%), DPO proceeds (36.4%), notesales proceeds (19.0%) and other sources of collections (3.7%). Profitability on the secured closed debtors, at 75%, is below Scope’s expectations under the B case scenario at closing. Scope has reviewed to the downside its profitability expectations by decreasing our lifetime recovery expectations, under a B case scenario, to 36.6% from 39.3% at closing. 

Downward revision of the business plan (negative)¹. The servicer has revised the initial business plan on four occasions with the most recent update (updated in 2022) being 20.9% below initial expectations and 9.0% below the 2021 business plan update, which reflects the uncertainty of initially projected recovery proceeds. 

Slowdown of the Italian economy (negative)². The adverse impact of tightening financing conditions and persistent inflationary pressures could slow down the Italian economy. This could lead to a deterioration of liquidity conditions and negatively affect the collection volumes.

Hedging (positive)¹. The transaction implements a cap spread and a structural cap on class A Euribor which mitigates the risk of increased liabilities on the notes due to rising Euribor rates.

Class B interest subordination (positive)¹. The current subordination of class B interests is positive for the class A noteholders as class A principal repayment now ranks senior to class B interest payments under the priority of payments.

Rating-change drivers

Positive. Consistent servicer outperformance in terms of recovery timing and the total amount of collections could positively impact the rating.

Negative. Servicer performance falling short of Scope’s collection amounts and timing assumptions could negatively impact 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 gross recovery rate of 24.0% over a remaining weighted average life of 2.3 years. By portfolio segment, Scope assumed a remaining gross recovery rate of 53.8% and 4.1% 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.

• 10% haircut to recoveries, minus two notches;
   
• a one-year recovery lag increase, zero notches; 

References
1. Transaction documents and reporting (Confidential)
2. Scope research

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 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.

Methodology
The methodologies used for these Credit Rating, (Non-Performing Loan ABS Rating Methodology, 5 August 2022; Counterparty Risk Methodology, 14 July 2022; General Structured Finance Rating Methodology, 25 January 2023), are available on https://www.scoperatings.com/ratings-and-research/structured-finance/methodologies.
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/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-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 these 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. 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 is based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
This 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: Elom Kwamin, Analyst.
Person responsible for approval of the Credit Rating: Antonio Casado, Executive Director
The Credit Rating was first released by Scope Ratings on 1 August 2018.

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. A member of the Board of Trustees of Scope Foundation has a significant relationship with Société Generale SA, a related third party to this transaction. The Scope Foundation is a 20% shareholder of Scope Management SE, the general manager of Scope SE & Co KGaA (“Scope Group”). Scope Foundation has no financial or economic interest in Scope SE & Co KGaA and the main function of the foundation is to preserve the European identity of the shareholder structure of Scope Group.

Conditions of use/exclusion of liability
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