Rating action

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

Class A (ISIN IT0005387904): EUR 531.5m: downgraded to BB-_SF from BB+_SF

Class B (ISIN IT0005387912): EUR 80.0m: downgraded to CC_SF from CCC_SF

Class J (ISIN IT0005387920): EUR 30.0m: not rated

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

Transaction overview

Prisma 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 6,056 million by gross book value (GBV) at closing. The portfolio was originated by Unicredit S.p.A. and is serviced by doNext S.p.A. and by doValue S.p.A. as master and special servicer, respectively. The transaction closed on 18 October 2019.

As of the November 2023 payment date, aggregate gross collections stood at EUR 1,122.8m, representing 88.4% of the original business plan expectation up to such date. The sources of total gross collections are judicial proceeds (49.4%), discounted pay-off (DPO) proceeds (33.7%), credit sales proceeds (15.1%) and indemnities (1.8%).

About 49.2% of gross collections (EUR 552.6m) came from closed debtors (i.e. debtors for which the recovery process is completed). Since closing, Scope estimates 15.4% of initial gross book value has been closed.

56.1% of the class A notes’ notional has amortised since closing. The last business plan (updated in 2023) reports a lifetime expected gross recoveries which are 13.6% lower than the original business plan forecast. The net present value cumulative profitability ratio, computed for closed positions, stands at 95.1%, while the net proceeds cumulative collection ratio stands at 88.1%, which is below the 90% threshold triggering class B interest subordination to class A principal repayment.

Rating rationale

The review addressed i) the collateral’s observed performance as of the November 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

Key rating drivers remain broadly aligned with those disclosed in Scope’s previous rating action release dated April 14, 2023. The current rating action is mainly driven by the following performance metrics, which have a net negative impact:

Profitability¹ (negative). Profitability on secured closed positions is 31.5% below Scope’s expectation under the B case assumptions at closing. Uncertainty around lifetime profitability is high. So far, Scope believes that low profitability has been partly driven by a significant share of collections coming from DPOs and notesales. Scope has not been able to perform collateral sales analysis due to unavailable sales data during the review.

Faster pace of collections¹ (positive). The transaction continues to outperform Scope’s expectations in terms of collections timing under the B case scenario at closing. However, observed year-on-year slowdown in collections presents uncertainty regarding consistent overperformance in terms of timing.

Rating-change drivers

Positive. Strong servicer performance in terms of pace of collections and improved profitability on secured closed positions could positively impact the rating. An upgrade could be also conditional on the availability of asset sales data supporting profitability assumptions.

Negative. A further deterioration in transaction’s profitability, or persistent slowdown in the pace of collections could negatively impact the rating of the notes.

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 lifetime recovery rate of 32.8% over a weighted average life of 3.2 years (from its closing value of 35.7% over 4.6 years). By portfolio segment, Scope assumed a secured recovery rate of 48.0% from its closing value of 54.8% and an unsecured recovery rate of 5.9% from 1.6% assumed at closing.

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.

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 following shows how the results for class B notes would change compared to the assigned rating in the event of:

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

Rating driver 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 Structured Finance Expected Loss Model Version 1.2 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 rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
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, 6 March 2024), 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 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: Elom Kwamin, Analyst
Person responsible for approval of the Credit Ratings: Antonio Casado, Managing Director
The Credit Ratings were first released by Scope Ratings on 18 October 2019. The Credit Ratings were last updated on 14 April 2023.

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
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