DBRS Ratings Limited (DBRS) confirmed the ratings of the Class A and Class B Asset-Backed Floating-Rate Notes due December 2036 (the Notes) issued by Popolare Bari NPLS 2016 S.r.l. (the Issuer) as follows:
-- Class A at BBB (high) (sf)
-- Class B at B (high) (sf)
The confirmations reflect the stable performance of the transaction since its issuance on 12 August 2016 (the Issue Date).
Popolare Bari NPLS 2016 S.r.l. was the first public Italian non-performing loan securitisation transaction executed since 2007. The transaction included the issuance of Class A, Class B and Class J notes, the last of which are not rated by DBRS. The Class A notes represented 26.4% of total gross book value (GBV) while the Class B and Class J notes comprised roughly 2.9% and 2.1% of GBV.
The notes are backed by a mixed pool of Italian non-performing loans originated by Banca Popolare di Bari S.p.A. (BPB or the Seller), Banca Tercas S.p.A. and Banca Caripe S.p.A. In July 2016, Banca Tercas S.p.A. and Banca Caripe S.p.A. merged into BPB.
The securitised portfolio consists of both secured and unsecured non-performing loans. The secured loans are collateralised by residential properties, commercial properties (i.e., industrial, office, retail and hotel assets) and land. The loans in the portfolio defaulted between 2000 and 2015, with the majority of the loans (approximately 59.3% of initial GBV) defaulting between 2012 and 2014. Most of the secured loans are backed by properties located in the southern regions of Italy, where loans typically have a longer bankruptcy and settlement process. In its analysis, DBRS assumed that all loans are disposed through the auction process, which generally has the longest resolution timeline.
As of the June 2018 investor report, the outstanding principal balances of the Class A and Class B notes are equal to EUR 105.3 million and EUR 14.0 million, respectively. The transaction structure is fully sequential and the Class A current balance amortised ca. 16.74% since issuance. Class B, which represents mezzanine debt, will not be repaid until Class A is repaid in full. Class J does not receive any issuer available funds until Class A and Class B are repaid in full. The current aggregated transaction balance is EUR 129.3 million.
The portfolio is serviced by Prelios Credit Servicing S.p.A. (PRECS). At issuance, PRECS prepared the business plan assuming a judicial procedure for each borrower. The servicer’s initial business plan, as reported in the most recent semi-annual servicing report dated May 2018, assumed cumulative gross disposition proceeds (GDP) of EUR 31.8 million from the period between the closing date and Q2 2018. Based on the same report, the servicer’s reported actual cumulative GDP collections are equal to EUR 31.5 million, which is 0.85% lower than initially expected.
According to the most recent semi-annual servicing report, the servicer reports an updated business plan, which estimates decreased cumulative GDP collections compared to its initial business plan. Specifically, the expected cumulative GDP for the next six months (to Q4 2018) is EUR 41.1 million, or 10.23% less than the initial expectation of EUR 45.8 million for the same period. The reported servicing fees for Q2 2018 were equal to EUR 358,700 and therefore lower than the servicing fees as per the initial business plan. Since closing and because of the disposal of residential and commercial properties as well as unsecured loans, the total GBV of the portfolio reduced by EUR 38.8 million, or by 8.09% compared with the initial GBV. The most recent semi-annual servicing report reported a total GBV of EUR 441.0 million (EUR 479.8 million at issuance). As reported in the semi-annual servicing report of May 2018, the cumulative collection ratio and net present value cumulative profitability ratio are 108.04% and 108.52%, respectively. A subordination event would occur if any of the two ratios were lower than 90%.
The portfolio continues to be mainly concentrated in the same regions as at issuance; the Italian region of Abruzzo still has the largest concentration of assets in the pool at 29% of the portfolio by GBV versus 27.0% at issuance.
The transaction benefits from a EUR 4.2 million cash reserve, which was fully funded at closing through a limited recourse loan, and an additional 2.5 million cash reserve that was funded with collections. According to the most recent investor report of June 2018, the outstanding balance of the cash reserve amount is EUR 3.7 million, which has been reduced in proportion to the transaction’s collateral reduction, as the cash reserve target amount is equal to 3% of the Class A and Class B principal outstanding amount. The current balance of the additional cash reserve remains at EUR 2.5 million.
The ratings are based on DBRS’s analysis of the projected recoveries of the underlying collateral; the historical performance and expertise of the servicer, PRECS; the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses; the cap agreement with J.P. Morgan Securities plc; and the transaction’s legal and structural features. The transaction’s final maturity date is in December 2036.
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.
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 the ratings include Prelios Credit Servicing S.p.A and Securitisation Services S.p.A.
DBRS did not rely upon third-party due diligence in order to conduct its analysis. However, this did not impact the rating analysis.
At the time of the initial rating DBRS was not 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 this rating 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 the transaction took place on 11 August 2017, when DBRS confirmed its ratings of the Class A and Class B notes.
The lead analyst responsibilities for this transaction have been transferred to Mattia Pauciullo.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of the 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”):
-- Recovery Rates Used: 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 (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 B (high) (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, European Structured Finance
Rating Committee Chair: Christian Aufsatz, Managing Director, European Structured Finance
Initial Rating Date: 12 August 2016
DBRS Ratings Limited
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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 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
--Master European Structured Finance Surveillance Methodology
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.