Rating action

Scope Ratings GmbH (Scope) has completed a monitoring review of the following notes issued by Aqui SPV S.r.l.:

Class A (ISIN IT0005351330): EUR 277.0m: downgraded to B+_SF from BB_SF

Class B (ISIN IT0005351348): EUR 62.9m: not rated

Class J (ISIN IT0005351355): EUR 10.9m: not rated

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

Transaction overview

Aqui SPV S.r.l. is a static cash securitisation of secured and unsecured non-performing loans extended to companies and individuals in Italy worth EUR 2,082 million by gross book value (GBV) at closing. The portfolio was originated by BPER Banca S.p.A, Cassa di Risparmio di BRA S.p.A and Cassa di Risparmio di Saluzzo S.p.A. and is serviced by Prelios Credit Services S.p.A. as master and special servicer. The transaction closed on 7 November 2018.

Aggregate gross collections stood at EUR 379.5m as of 31 March 2023, representing 83.3% of the original business plan expectation up to such date. The sources of total gross collections are judicial proceeds (48.9%), discounted pay-off (DPO) proceeds (26.4%), credit sales proceeds (16.6%) and other type of collections (8.1%).

About 39.1% of gross collections (EUR 148.5m) came from closed debtors (i.e. debtors for which the recovery process is completed). Scope estimates 18.7% of the initial gross book value has been closed since deal inception.

49.1% of the class A notes’ notional has amortised and the reported net proceeds cumulative collection ratio and NPV profitability ratios are 84.1% and 104.4% respectively. The cumulative collection ratio fell below 95.0%, triggering a class B interest subordination event.

Rating rationale

The review addressed a) the observed performance of the collateral as of the review cut-off date, b) Scope´s forward-looking performance assumptions, in the context of the expected macro-economic environment over the remaining life of the transaction, c) the transaction´s updated liability structure, liquidity and interest rate hedging arrangements, and e) the issuer´s exposure to key transaction parties.

The main considerations on transaction’s performance are the following:

Unsecured borrower profitability (positive)¹. Profitability on closed unsecured borrowers (589) is 126.4%* of Scope’s B rating scenario that was assumed at closing.

Servicing fees and costs (positive)¹. Total servicing fees and costs are approximately 12.9% of gross collections to date, which is below Scope’s expectation of roughly 14%.

Low profitability of closed positions (negative)¹. Profitability on the secured closed debtors is 23.8% below Scope’s expectations under the B case at closing.

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

Note sale strategy (negative)¹. Notes sales typically result in lower-than-expected collections, they account for 16.6% of total gross proceeds.

Key rating drivers

The transaction's key rating drivers continue to be aligned with those disclosed in our last rating action, dated November 8, 2021.

Rating-change drivers

Positive. Improved profitability on secured collections together with a faster than expected pace of collections could positively impact the rating.

Negative. Slowdown of the Italian economy driven by persistent inflationary pressures combined with tighter monetary policy, and the potential deterioration of affordability conditions could impair servicers’ performance on collections.

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.

At the B case, Scope assumed a lifetime gross recovery rate of 39.2% over a weighted average life of 5.2 years (versus 40.3% over 5.7 years in the last rating action). By portfolio segment, Scope assumed a lifetime gross recovery rate of 58.1% and 14.1% over a weighted average life of 5.4 and 4.2 years, for the secured and unsecured portfolios (from their values of 60.0% and 14.1% over 6.0 and 4.2 years in the last rating action).

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 would change compared to the assigned rating in the event of:

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

*. The profitability has been amended on 28 June 2023. In the initial publication from 23 June 2023 the value was 12.4%.

References
1.Transaction documents and reporting (Confidential)

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 Ratings, (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 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 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: Stefano Bracchi, Associate Analyst.
Person responsible for approval of the Credit Ratings: Antonio Casado, Executive Director
The Credit Rating was first released by Scope Ratings on 7 November 2018. The Credit Ratings were last updated on 8 November 2021.

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.

Conditions of use / exclusion of liability
© 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis 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.