The rating actions are as follows:
Class A (ISIN IT0005429128), EUR 466,000,000: assigned a final rating of BBBSF
Class B (ISIN IT0005429144), EUR 91,000,000: not rated
Class J (ISIN IT0005429151), EUR 10,000,000: not rated
The transaction is a static cash securitisation of an Italian non-performing lease portfolio worth around EUR 1,583m by gross book value (as total gross claim amount). The portfolio was originated by Unicredit Leasing S.p.A. and will be serviced by doValue S.p.A. as special servicer and Italfondiario S.p.A. as master servicer.
The issuer acquired the portfolio at the transfer date of 1 December 2020. The disposable assets were transferred to Relais LeaseCo S.r.l. on the same date. The non-immediately transferrable assets (i.e., non-repossessed assets, repossessed assets have not yet regularised, assets subject to specific law or contractual provisions) were assigned to Relais LeaseCo S.r.l. through a partial de-merger of the Unicredit Leasing S.p.A. on 1 December 2020.
The pool is composed of 86.5% of secured leases (relevant assets yet to be sold) and 13.5% of unsecured receivables (leases exposures for which the relevant assets had been sold). Borrowers are mainly corporates (99.2%). Secured leases are mainly backed by commercial and industrial real estate assets (respectively 56.4% and 36.4% of property values), while remainder assets are represented by residential properties, land and residual type of assets (respectively 2.6%, 1.2% and 3.4%). Properties are concentrated in northern Italy, with 49.2% of property values, and southern and central regions account for 27.4% and 23.4% respectively. Asset information reflects Scope’s pool adjustments on collections and sold properties since the cut-off date of 31 March 2020.
The structure comprises three classes of notes with fully sequential principal amortisation: senior class A, mezzanine class B, and junior class J. The class A notes will pay a floating rate indexed to six-month Euribor plus a margin of 1.50%. Class B will pay a floating rate indexed to six-month Euribor plus a margin of 9.5%. The class J principal and interest are subordinated to the principal repayment of the senior and mezzanine notes.
The notes have been structured considering the requirements of the 2019 GACS Scheme.
The rating is primarily driven by the expected recovery amounts and timing of collections from the non-performing lease portfolio. The recovery amounts and timing assumptions consider the portfolio’s characteristics as well as Scope’s economic outlook for Italy and its assessment of the special servicer’s capabilities. The rating is supported by the structural protection provided to the notes, the absence of equity leakage provisions, the liquidity protection and the interest rate hedging agreement.
The rating also addresses the issuer’s exposure to key counterparties, with the assessment based on counterparty substitution provisions in the transaction and, when available, Scope’s ratings or other public ratings on the counterparties.
At the repossession date full valuations were performed (positive). For those assets that have been repossessed for more than one year, annual desktop valuations were performed with on-site bi-annual visits conducted by third party service providers. These valuation types are generally more accurate than CTU or statistical valuations.1
Recent appraisals (positive). 93.2% of valuations were conducted between 2019 and 2020, meaning asset values are likely to reflect the liquidity risks and price fluctuations currently present in the real estate market.1
Material portion of non-repossessed and non-regularised assets as of the cut-off date (negative). By gross book value, 76% of secured leases are backed by non-repossessed or non-regularised assets. Specifically, 45% of secured leases by gross book value are in the initial phase after contract resolution, 15% are repossessed but not regularised, and 16% are repossessed and undergoing regularisation. Before being sold in the open market, assets need to be repossessed and regularised; these activities lengthen the expected collection time in comparison with collaterals in more advanced phases.1
Absence of line-by-line information on servicer’s sale strategy following repossession (negative). Accurate information on the servicer’s asset sale strategy helps in calibrating timing assumptions for collections.1
Servicer outperformance on repossession and regularisation timing (upside). A faster-than-expected regularisation or repossession of de-merged assets could accelerate the timing of open market sales, leading to faster recoveries. This could positively impact the rating.
Longer-lasting pandemic crisis (downside). Recovery rates are generally dependent on the macroeconomic climate. Scope’s baseline scenario2 foresees Italian GDP to contract by 9% in 2020 before rebounding with 6.1% growth in 2021. If current crisis lasts beyond Scope’s baseline scenario, liquidity conditions could deteriorate, reducing servicer performance on collection volumes. This could negatively impact the rating.
Scope analysed cash flows, reflecting the transaction’s structural features, to calculate each tranche’s expected loss and weighted average life. As the first step, Scope analysed the assets to produce a rating-conditional cash flow projection of gross recoveries for the portfolio of defaulted leases.
Scope performed a specific analysis for recoveries, using different approaches for secured and unsecured exposures. For secured leases, collections were mainly based on the most recent property appraisal values, which were stressed for the appraisal type, and liquidity and market value risks. Recovery timing assumptions were derived using line-by-line asset information detailing the type of legal proceeding, the properties’ status (i.e., repossessed or regularised), the court issuing the proceeding, and the stage of the proceeding as of the cut-off date. Scope also considered historical data provided by the servicer. For unsecured receivables, Scope used historical line-by-line and market-wide recovery data on defaulted loans between 2000 and 2019 and considered the special servicer’s capabilities when calibrating lifetime recoveries. Scope unsecured recovery rate considers the potential coverage from third party guarantees, when available. Scope considered that unsecured borrowers were classified as defaulted for a weighted average of 6.9 years as of the cut-off date. The analysis also accounted for the current macroeconomic scenario and took a forward-looking view on macroeconomic developments.
For the class A notes analysis, Scope assumed a gross recovery rate of 44.4% over a weighted average life of 5.42 years. By portfolio segment, Scope assumed a gross recovery rate of 48.6% for secured leases and 17.9% for unsecured receivables (the unsecured recovery rate figure is inclusive of collections from residual unsecured claims after the asset’s sale). Scope applied an average combined security value haircut of 47.4%, which consists of i) an average fire-sale discount (including valuation type haircuts) of 37.6% to security values, reflecting liquidity or marketability risks; and ii) property price decline stresses (13.9% on average), reflecting Scope’s view of downside market volatility risk. Scope’s calculation of the security value weighted average rate excludes any collateral sold between the cut-off date and the issue date.
Scope’s analysis considered the servicer fee structure and LeaseCo operating costs at around 11% of lifetime gross collections. Scope captured single asset exposure risks by applying a recovery rate haircut of 10% to the 10 largest borrowers for the class A analysis.
Scope tested the resilience of the rating against deviations in the main input parameters: the portfolio recovery-rate and the portfolio recovery timing. This analysis has the sole purpose of illustrating the sensitivity of the ratings to input assumptions and is not indicative of expected or likely scenarios.
The following shows how the results for the class A change compared to the assigned credit rating in the event of:
Rating driver references
1. Loan-by-loan data tape of the securitised pool (confidential)
2. Italy’s debt sustainability remains a challenge, despite low interest costs and pro-growth agenda
Stress testing was performed by applying rating-adjusted recovery rate assumptions.
Cash flow analysis
Scope performed a cash flow analysis of the transaction with the use of Scope Cash Flow SF/EL Model Version 1.1 incorporating default and recovery rate assumptions over the portfolio’s amortisation period, 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 and an expected weighted average life for the notes.
The methodologies used for this rating are the Non-Performing Loan ABS Rating Methodology (9 September 2020) and the Methodology for Counterparty Risk in Structured Finance (8 July 2020), available on https://www.scoperatings.com/#!methodology/list.
The model used for this rating is Cash Flow Model v1.1. is available in Scope’s list of models, published under: https://www.scoperatings.com/#!methodology/list
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please 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’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
Scope analysts are available to discuss all the details of the rating analysis and the risks to which this transaction is exposed.
Solicitation, key sources and quality of information
The rated entity and its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, agents of the issuer, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s rating 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 Ratings GmbH has received a third-party asset due diligence assessment. The external due diligence assessment was considered when preparing the rating and it has no impact on the credit rating. Prior to the issuance of the rating, the rated entity was given the opportunity to review the rating and the principal grounds on which the credit rating is based. Following that review, the rating was not amended before being issued.
This credit rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Rossella Ghidoni, Associated Director.
Person responsible for approval of the ratings: David Bergman, Managing Director.
The rating was first released by Scope on 11 December 2020.
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.
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