DBRS Assigns Ratings to Aragorn NPL 2018 S.r.l.

DBRS Ratings Limited (DBRS) assigned the following ratings to the notes issued by Aragorn NPL 2018 S.r.l. (the Issuer):

-- BBB (low) (sf) to the EUR 509,524,000 Class A notes
-- CCC (sf) to the EUR 66,822,000 Class B notes

The notes are backed by a EUR 1.7 billion portfolio by gross book value (GBV) consisting of unsecured and secured non-performing loans originated by Credito Valtellinese S.p.A. and Credito Siciliano S.p.A. (the Originators). The majority of loans in the portfolio defaulted between 2014 and 2017 and are in various stages of resolution. The receivables are serviced by Cerved S.p.A. and Credito Fondiario S.p.A. (Credito Fondiario). Credito Fondiario also operates as the Master Servicer in the transaction.

Approximately 82% of the pool by GBV is secured and 73.0% (by GBV) of the pool benefits from a first-ranking lien. The secured loans included in the portfolio are backed by properties distributed across Italy, with concentrations in the regions of Lombardy, Sicily, Lazio and Marche. In its analysis, DBRS assumed that all loans are worked out through an auction process, which generally has the longest resolution timeline.

Interest on the Class B notes, which represent mezzanine debt, may be repaid prior to the principal of the Class A notes (up to a cap of 7%, with the remainder being paid junior to the Class A notes) unless certain performance related triggers are breached.

The securitisation includes the possibility to implement a ReoCo structure.

The ratings are based on DBRS’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the Special Servicers, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement and the transaction’s legal and structural features. DBRS’s BBB (low) (sf) and CCC (sf) rating stresses assume a haircut of approximately 17.7% and 0.0% respectively to the Special Servicers’ business plan for the portfolio.

DBRS analysed the transaction structure using Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Non-Performing Loans Securitisations”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include the Originators and the Special Servicers.

DBRS did not rely upon third-party due diligence to conduct its analysis. DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing the ratings was of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with
the rating process.

These rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared with the parameters used to determine the rating (the Base Case):

-- Recovery Rates Used: Cumulative Base Case Recovery Amount of ca. EUR 635 million at the BBB (low) stress level, a 5% and 10% decrease of the Cumulative Base Case Recovery Rate.

-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class A notes to BB (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a downgrade of the Class A notes to B (sf).

-- Recovery Rates Used: Cumulative Base Case Recovery Amount of ca. EUR 773 million at the CCC stress level, a 5% and 10% decrease of the Cumulative Base Case Recovery Rate.

-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class B notes to below CCC (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a downgrade of the Class B notes to below CCC (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Alessio Pignataro, Senior Vice President, Global Structured Finance
Initial Rating Date: 14 June 2018
Rating Committee Chair: Christian Aufsatz, Managing Director, Global Structured Finance

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

--Rating European Non-Performing Loans Securitisations
--Rating European Consumer and Commercial Asset-Backed Securitisations
--Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
--European CMBS Rating and Surveillance Methodology
--Operational Risk Assessment for European Structured Finance Servicers
--Legal Criteria for European Structured Finance Transactions
--Derivative Criteria for European Structured Finance Transactions
--Interest Rate Stresses for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.