Rating action

Scope Ratings GmbH (Scope) has reviewed the performance of the notes issued by POP NPLs 2019 S.r.l.. The rating actions are as follows:

Class A (ISIN IT0005396061), EUR 79.3m: downgraded to BB_SF from BB+_SF

Class B (ISIN IT0005396079), EUR 25.0m: affirmed at CC_SF

Class J (ISIN IT0005396087), EUR 5.0m: not rated

Scope’s review was based on servicer, investor and payment reporting as of the February 2024 payment date.

Transaction overview

POP NPLs 2019 S.r.l. is a static cash securitisation of secured and unsecured non-performing loans (NPLs) extended to companies and individuals in Italy worth EUR 826.7 million by gross book value (GBV) at closing. The master servicer is Prelios Credit Servicing S.p.A. and the special servicers are Prelios Credit Solutions S.p.A. and Fire S.p.A.. The portfolio was originated by 12 Italian regional banks. The transaction closed on 23 December 2019.

As of 6 February 2024, aggregate net collections were EUR 121.0m. Total available gross collections are split between judicial proceeds (56.3%), discounted pay-off proceeds (40.6%) and other sources of collections (3.1%). Cumulative collections ratio stands at 119%.

Rating rationale

The review addressed i) performance observed performance until the February 2024 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.

Beyond the key rating drivers addressed in our previous rating action release dated 7 July 2023, following we detail the main analytical considerations addressed during the current monitoring review. Recovery expenses remain high at 11% of cumulative gross collections. Moreover, the observed average property sale discount, considering both open and closed borrowers, is 53% based on Scope calculations and it is above our expectations made at closing. Residential properties are showing a lower discount (50%) compared to commercial and land (57% and 59%, respectively). As a positive factor, the pool factor of the Class A notes, currently at 46%, reflects a pace of collection which is slightly faster than the average of peer transactions.¹

Key rating drivers

The transaction’s key rating drivers are aligned with those disclosed in Scope’s previous rating action release dated 7 July 2023.

Rating-change drivers

Positive. A material decrease in legal costs could positively impact the ratings.

Negative. Collection strategies with low profitability and/or delayed collections may negatively impact the ratings.

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. At the B case, Scope assumed a lifetime gross recovery rate of 31% over a weighted average life of 5.4 years (from its closing value of 34% over 5.7 years). By portfolio segment, Scope assumed a lifetime gross recovery rate of 50% and 14% for the secured and unsecured portfolios, respectively, over a weighted average life of 5.5 and 4.9 years (from their closing values of 61% and 11% over 6.1 and 3.6 years).

Sensitivity analysis

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, minus three notches
   
• Extending the recovery by one year, minus 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, minus one notch
   
• Extending the recovery by one year, minus one notch

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 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.

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://www.scoperatings.com/ratings-and-research/structured-finance/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://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 the 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. 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.

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, Managing Director
The Credit Ratings were first released by Scope Ratings on 23 December 2019. The Credit Ratings were last updated on 7 July 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
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis 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.