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      Scope downgrades Class A notes issued by Relais SPV S.r.l. - Italian Non-performing lease ABS

      THURSDAY, 06/06/2024 - Scope Ratings GmbH
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      Scope downgrades Class A notes issued by Relais SPV S.r.l. - Italian Non-performing lease ABS

      Scope downgrades the class A notes issued by Relais SPV S.r.l., a static cash securitisation of Italian non-performing lease portfolio, following a monitoring review.

      Rating action

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

      Class A (ISIN IT0005429128): EUR 245.3m: downgraded to BB-SF from BB+SF

      Class B (ISIN IT0005429144), EUR 91,000,000: not rated

      Class J (ISIN IT0005429151), EUR 10,000,000: not rated


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

      Transaction overview

      Relais SPV S.r.l. is a static cash securitisation of an Italian non-performing lease portfolio worth around EUR 1,583m (at closing) by gross book value (as total gross claim amount). The portfolio was originated by Unicredit Leasing S.p.A. and serviced by doValue S.p.A. as special servicer and doNext S.p.A. (formerly Italfondiario S.p.A.) S.p.A. as master servicer. The transaction closed on 11 December 2020 and the legal maturity is July 2040. Scope does not rate the class B and J notes.

      As of the January 2024 payment date, aggregate gross collections stood at EUR 373.4m, representing 81.5% of the original business plan expectation up to such date. The sources of total gross collections are asset sale proceeds (87.6%), judicial proceeds (4.5%), discounted pay-off (DPO) proceeds (2.0%) and others (5.9%).

      About 18.6% of gross collections (EUR 69.4m) came from closed debtors (i.e. debtors for which the recovery process is completed). Since closing, Scope estimates 8.0% of initial gross book value has been closed.

      47.4% of the class A notes’ notional has amortised since closing. The last business plan (updated in 2023) reports lifetime expected gross recoveries which are 9.8% lower than the original business plan forecast. The net present value cumulative profitability ratio, computed for closed positions, stands at 116.7%, while the net proceeds cumulative collection ratio stands at 94.5%, which is above the 90% threshold for class B interest subordination to class A principal repayment.

      Rating rationale

      The review addressed i) the collateral’s observed performance as of the January 2024 payment date; ii) Scope’s forward-looking assumptions, which incorporate expected macroeconomic conditions 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 June 26, 2023. The current rating action is mainly driven by the following factors, which have a net negative impact:

      Weak profitability1 (negative). Although profitability appears to be fairly stable since our previous review, observed profitability metrics are well below Scope’s initial expectations: Scope conducted a sales price analysis on 847 properties sold by the special servicer since closing, resulting in a weighted average discount of 44.5%, 18.5pp above Scope’s base case assumption at closing. Additionally, profitability on closed positions is 10% below Scope’s expectation under the B case assumptions at closing, while the share of closed positions, estimated as 8% of transaction’s initial gross book value is below the average of monitored transactions with same issuance year.

      Business plan review (negative). The latest update to the servicer business plan, received on 30 November 2023, confirms that the transaction is underperforming initial expectations. The total gross proceeds of the initial business plan has been revised downwards by 9.8%.

      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. An improvement in sale discounts and profitability on closed positions could positively impact the rating.

      Negative. A further deterioration in transaction’s profitability, persistent high discounts observed on sold assets or a slowdown in the pace of collections could negatively impact the rating of the notes. Additionally, Scope has been made aware of running indemnity process (details of the process were unavailable at time of review). Should the process result in realized collections falling significantly below Scope projections, rating of the notes could negatively be impacted.

      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 46.3% over a weighted average life of 4.0 years (from its closing value of 51.4% over 5.7 years).

      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, 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 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 this Credit Rating, (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 this Credit Rating 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 Rating: 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 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/asset audit at closing. The external due diligence assessment/asset audit was considered when preparing the Credit Rating and it has no impact on the Credit Rating.
      Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and the principal grounds on which the Credit Rating are based. Following that review, the Credit Rating was not amended before being issued.

      Regulatory disclosures
      The Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
      Lead analyst: Elom Kwamin, Analyst
      Person responsible for approval of the Credit Rating: Antonio Casado, Managing Director
      The Credit Rating was first released by Scope Ratings on 11 December 2020. The Credit Rating was last updated on 26 June 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.

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