DBRS Ratings Limited (DBRS) confirmed its ratings of Fino 1 Securitisation S.r.l. (the Issuer) as follows:
-- Class A Notes at BBB (high) (sf)
-- Class B Notes at BB (high) (sf)
-- Class C Notes at BB (sf)
The notes are backed by a portfolio of secured and unsecured Italian non-performing loans originated by UniCredit S.p.A. (UniCredit). The majority of loans in the portfolio defaulted between 2010 and 2017 and are in various stages of the resolution process. The loans are serviced by doBank S.p.A. (doBank).
Given the nature of the collateral and the defaulted status of the loans included in the portfolio, the collections received are the primary source of payment under the notes. As a result, there is a significant reliance on doBank’s ability and performance as servicer in executing the business plan. DBRS views the granularity of the portfolio, the presence of a cash reserve and the experience of the servicer as mitigating factors for this risk.
In its analysis, DBRS assumed that all loans are disposed through a judicial resolution strategy. Both the DBRS timing and value stresses are based on the historical repossessions data of the servicer, doBank. DBRS’s BBB (high) (sf), BB (high) (sf) and BB (sf) ratings assume a haircut of 23.9%, 19.5% and of 19.0%, respectively, to the servicer’s initial business plan for the portfolio.
As of the October 2018 investor report, the principal amount outstanding of the Class A, Class B and Class C notes was EUR 545 million, EUR 29.6 million and EUR 40 million, respectively. The balance of the Class A notes amortised by approximately 16% since issuance. The Class D notes do not receive any issuer available funds until the Class A, Class B and Class C notes are repaid in full. The outstanding transaction balance is EUR 614.6 million.
As reported in the most recent semi-annual servicer report, the actual cumulative gross collections accounted for EUR 251 million in the first ten-month period after closing. The servicer’s initial business plan as detailed in the servicing report assumed cumulative gross collections of EUR 273 million during the same period, which is 9% higher than the actual amount collected to date.
At issuance, DBRS estimated cumulative gross collections for the same ten-month period of EUR 98 million in the BBB (high) scenario, and EUR 107 million in the BB (high) scenario, both lower than actual cumulative gross collections to date.
Since closing and due to the disposal of residential and commercial properties as well as unsecured loans, the total gross book value (GBV) of the portfolio has been reduced by EUR 115 million or by 2.14% compared with the initial GBV. The most recent reported GBV as of September 2018 was EUR 5.259 million (EUR 5.374 million at issuance). The portfolio continues to be mainly concentrated in the same areas as at issuance, with northern Italy representing the largest concentration of assets in the pool with 42.8% by GBV (43% at issuance).
The transaction benefits from a EUR 32.5 million cash reserve, which was fully funded at closing through a limited recourse loan. According to the most recent investor report of October 2018, the outstanding balance of the cash reserve amount was EUR 29 million, which has been reduced in proportion to the transaction’s collateral reduction, as the cash reserve target amount is equal to 5% of the Class A principal outstanding amount.
The ratings are based on DBRS’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the servicer, doBank, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with HSBC France and the transaction’s legal and structural features.
The transaction’s final maturity date is in October 2045.
The transaction cash flow structure was analysed in Intex DealMaker.
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.
An asset and a cash flow analysis were both conducted.
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 information from doBank and UniCredit.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
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.
This is the second rating action since the Initial Rating Date. 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”):
-- 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 BBB (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 (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 BB (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would each lead to a downgrade of the Class B Notes to B (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would each lead to a downgrade of the Class C Notes to B (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would each lead to a downgrade of the Class C Notes to below B.
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: Christian Aufsatz, Managing Director
Initial Rating Date: 23 November 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 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