4Mori Sardegna S.r.l. is a static cash securitisation of secured and unsecured non-performing loans extended to companies and individuals in Italy worth EUR 1.0bn by gross book value at closing. Prelios Credit Servicing S.p.A. is the special servicer. The loans were originated by Banco di Sardegna S.p.A. The transaction closed on 22 June 2018 and the legal maturity is in January 2037.

4Mori Sardegna S.r.l. intends to implement a real estate operating company (ReoCo) structure, which will be established according to the provisions of article 7.1 paragraph 4 of Law 130 of 1999. Prelios S.p.A. will be appointed as the ReoCo asset manager to carry out all the ReoCo servicing activities.

The main purpose of the ReoCo is to encourage third-party acquisitions at auctions above auction base prices or to repossess real-estate assets at otherwise empty auctions and re-sell them at better prices on the open market. The implementation of the ReoCo structure could be positive as it might increase gross recovery rates. However, based on the draft documentation, ReoCo structural fees and costs as well as repayment of third-party financing will rank senior to the repayment of assumed debt towards the issuer. Therefore, the benefit of the ReoCo implementation will largely depend on the ability of the ReoCo servicer to sell purchased properties at higher prices, net of senior costs, than would have been realised at auctions.

The overall amount of debt assumed by the ReoCo will be limited to EUR 20m on a revolving basis. This means that after an asset is sold, the total allowable exposure will not be reduced. However, the ReoCo is expected to intervene in auctions only for 36 months, after which the ReoCo will only manage the assets already in its portfolio.

The ReoCo activity will be financed through a loan provided by a Prelios Credit Servicing, currently the servicer of the transaction. Additionally, further financing may be requested by the ReoCo from another third-party provider.

Scope’s analysis only covers the credit impact associated with the agreements described above. Scope Ratings has not addressed other non-credit related effects that may be relevant for investors and/or counterparties when assessing the impact of said agreement.

This announcement does not constitute a rating action nor indicates the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.