DBRS Ratings Limited (DBRS) confirmed its ratings on the Italian non-performing loans transaction, Brisca Securitisation S.r.l. (the Issuer), as follows:
-- Class A Notes at BBB (high) (sf)
-- Class B Notes at B (low) (sf)
The rating confirmation follows an annual review of the transaction and reflects the stable performance of the transaction since its issuance on 5 July 2017.
As of the cut-off date (31 August 2016), the portfolio consisted of 5,001 loans to 2,069 borrowers with a total gross book value of EUR 938.3 million. The Prelios business plan assumes that all loans will be disposed through a legal foreclosure process and the collections received will be the principal source of payment under the Notes. According to the Prelios business plan, gross disposition proceeds (GDP) totalling EUR 393.0 million are expected to be collected. The collateral primarily consists of secured loans backed by residential real estate properties (63.6% of the expected Prelios GDP) and commercial real estate properties (30.4% of the expected Prelios GDP). Unsecured loans only account for 6.0% of the expected Prelios GDP. The collateral is primarily located throughout the northern regions of Italy, which is viewed as a strength of the transaction.
Since closing and due to the disposal of residential and commercial properties as well as unsecured loans, the total GBV of the portfolio has been reduced by EUR 70.1 million or by 7% compared to the initial GBV. The last investor report shows a GBV of EUR 890.9 million. The portfolio is still mainly concentrated in the same regions as at issuance, with the region of Liguria having the largest concentration of assets in the pool with 26.3% by GBV (27.1% at issuance).
As of the last investor report dated June 2018, the outstanding principal balance of the Class A Notes, Class B Notes and Class J Notes was equal to EUR 229.5 million, EUR 30.5 million and EUR 11.8 million, respectively. The balance of Class A Notes has currently been the only one to amortise (-13.8% since issuance). The current transaction balance, including the unrated Class J Notes, is EUR 271.8 million.
The Class A Notes benefit from the GACS guarantee provided by the Italian Ministry of Finance. However, DBRS’s ratings do not give credit to this guarantee and thus do not address potential payments under the GACS guarantee to the noteholders. Nevertheless, DBRS did account for the GACS expenses in its cash flow analysis as these payments rank senior to principal and interest payments on the Notes.
The transaction benefits from an amortising cash reserve that was fully funded at closing through collections received between the cut-off date and the transfer date. The initial cash reserve amount was equal to EUR 11.9 million with a target reserve amount equal to the maximum between (1) 4.0% of the outstanding balance of the Class A Notes and Class B Notes and (2) zero. The cash reserve currently stands at EUR 10.9. The cash reserve may be used to pay interest due on the Class A Notes and any senior fees and expenses. The transaction is fully sequential and the Class B Notes, which represent mezzanine debt, will not be repaid until the Class A Notes are repaid in full.
Given the nature of the collateral and the defaulted status of all loans included in the portfolio, the collections received will be the primary source of payment under the Notes. As a result, there is a significant reliance on Prelios’s ability and performance as a servicer in executing its business plan. Cumulated collections are currently ahead of what originally forecasted in the business plan. DBRS views the granularity of the portfolio, the cash reserve and the experience of Prelios as a servicer as mitigating factors for this risk.
The ratings are based on DBRS’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the Prelios as servicer, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with Banca IMI S.p.A. and the transaction’s legal and structural features. In its analysis, DBRS assumed that all loans are disposed through an auction process, which generally has the longest resolution timeline. Both the DBRS timing and value stresses are based on the historical repossessions data of the servicer, Prelios. DBRS’s BBB (high) (sf) and B (low) (sf) ratings assume haircuts of 18.7% and of 5.5%, respectively, to Prelios’s business plan for the portfolio.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology.”
DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
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 investor reports provided by Securitisation Services S.p.A and servicer reports provided by Prelios Credit Servicing S.p.A.
DBRS did not rely upon third-party due diligence in order to conduct its analysis. At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 5 July 2017, when DBRS assigned ratings to the Class A notes at BBB (high) (sf) and Class B notes at B (low) (sf).
The lead analyst responsibilities for this transaction have been transferred to Mattia Pauciullo.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available at: www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
-- The expected principal and interest collection in a rising interest scenario at BBB (high) (sf) rating level, a 5% and 10% reduction in the expected collections.
-- The expected principal and interest collection in a rising interest scenario at B (low) (sf) rating level, a 5% and 10% reduction in the expected collections.
-- 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 (high) (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 BB (sf).
-- 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 CCC (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would each lead to a downgrade of the transaction to CCC (sf) for the Class B Notes.
For further information on DBRS historical 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: Mattia Pauciullo, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 5 July 2017
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating European Non-Performing Loan Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
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 firstname.lastname@example.org.