Scope downgrades Class A notes issued by Popolare Bari NPLs 2017 S.r.l. - Italian NPL ABS
Scope Ratings GmbH (Scope) has performed the following rating action after completing a monitoring review on the notes issued by Popolare Bari NPLs 2017 S.r.l.:
Class A (ISIN IT0005316275), EUR 53.3m: downgraded to CSF from CCSF
Class B (ISIN IT0005316283), EUR 10.1m: affirmed at CSF
Class J (ISIN IT0005316291), EUR 13.5m: not rated
Scope’s review was based on servicer, investor and payment reporting as of the October 2023 payment date.
Popolare Bari NPLs 2017 S.r.l. is a static cash securitisation of secured and unsecured non-performing loans (NPLs), originally accounting for 56% and 44% of the EUR 319.7m gross book value at closing. The loans were mostly extended to companies (88.9%). Prelios Credit Servicing S.p.A. is the special servicer. The loans were originated by Banca Popolare di Bari S.c.p.a. and Cassa di Risparmio di Orvieto S.p.A., which both currently belong to the Mediocredito Centrale banking group. The transaction closed on 5 December 2017 and the legal maturity of the notes is October 2037.
As of 30 September 2023, aggregate net collections were EUR 43.2m, which is only 45.6% of the original business plan’s net expectations. Total available gross collections are split between discounted pay-off proceeds (34.0%), judicial proceeds (33.1%), note sales proceeds (16.4%), indemnities (12.3%) and other sources of collections (4.2%). Cumulative gross collections are only 33.6% of Scope’s B rating scenario at closing. The transaction’s underperformance is strongly increasing the issuer’s senior costs (e.g. the GACS fee and interests).
The servicer revises the business plan on an annual basis. The 2023 business plan reports expected gross recoveries 30.2% lower than the original business plan and with almost one additional year of weighted average life. Furthermore, the expected gross recoveries between October 2023 and the final maturity are only 72.7% of the class A notes’ current outstanding balance. The amortisation pace of Class A is among the lowest compared to peer transactions, as only 34.1% of its principal has amortised.
The present value cumulative profitability ratio (net present value ratio), computed for closed positions, stands at 89.1%, while the cumulative collection ratio stands at 45.6%. Unlike most Italian GACS NPL transactions, where class B interest subordination triggers also include the cumulative collection ratio, which would better protect senior noteholders if the pace of collections falls behind the original business plan, for this transaction, Class B interest is subordinated only if the net present value ratio falls below 90%.
The review addressed i) the collateral’s observed performance as of the October 2023 payment date; ii) Scope’s forward-looking assumptions, which incorporate expected macroeconomic changes over the transaction’s remaining life; iii) updates to the transaction’s liability structure, liquidity and interest rate hedging; and iv) the issuer’s exposure to key transaction counterparties.
Key rating drivers
The transaction’s key rating drivers, relating mainly to weak servicer performance, are aligned with those disclosed in Scope’s previous rating action release dated 24 April 2022.
Beyond the key rating drivers, another relevant rating factor which we considered during the annual review is the widening of the difference between the cap notional schedule and the outstanding amount of class A. As a result, in the next payment date the Class A note will be underhedged by 63.8%.1
Positive. Improving servicer performance leading to higher recovery expectations, could positively impact the rating.
Negative. Further deterioration of the servicer leading to lower recovery expectations, 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 also 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 has updated its modelling assumptions to reflect the current performance of the transaction. Scope assumed a 24.9% gross recovery rate over a weighted average life of 4.9 years for both Class A and Class B.
Scope tested the rating’s resilience to deviations in expected recovery rates and recovery timing. This analysis has the sole purpose of illustrating the rating’s sensitivity 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, zero notches
- Extending the recovery by one year, zero notches
The following shows how the results for the class B notes would change compared to the assigned rating in the event of:
10% haircut to recoveries, zero notches
- Extending the recovery by one year, zero 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 for the transaction using Scope Ratings' Cash Flow Structured Finance Expected Loss Model Version 1.2. This incorporated the relevant asset assumptions, taking into account the transaction’s main structural features, such as the notes’ priorities of payment, size and coupons. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.
The methodologies used for these Credit Ratings, (Non-Performing Loan ABS Rating Methodology, 3 August 2023; Counterparty Risk Methodology, 13 July 2023; General Structured Finance Rating Methodology, 25 January 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Cash Flow Structured Finance Expected Loss Model Version 1.2), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/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 this 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. The external due diligence assessment 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.
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: Davide Nesa, Director.
Person responsible for approval of the Credit Ratings: Antonio Casado, Managing Director
The Credit Ratings were first released by Scope Ratings on 5 December 2017. The Credit Ratings were last updated on 28 April 2022.
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
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