DBRS Ratings Limited (DBRS) confirmed the following ratings of the Class A and Class B notes (the Notes) issued by Popolare Bari NPLs 2017 S.r.l. (the Issuer):
-- Class A at BBB (low)
-- Class B at B (low)
The notes were backed by a EUR 319.9 million portfolio by gross book value (GBV) consisting of unsecured and secured non-performing loans originated by Banca Popolare di Bari s.c.p.a. (BPB), Cassa di Risparmio di Orvieto S.p.A. (CRO), Banca Caripe S.p.A. (Banca Caripe) and Banca Tercas S.p.A. (Banca Tercas).
In July 2016, Banca Caripe and Banca Tercas were fully consolidated into BPB. All loans in the portfolio defaulted between 2000 and 2016 and are in various stages of resolution. The portfolio is serviced by Prelios Credit Servicing S.p.A. (Prelios). A backup servicer, Securitisation Services S.p.A., has also been appointed and will act as the servicer in case Prelios’ appointment is terminated.
As a result of the disposal of residential and commercial properties as well as unsecured loans, the total GBV of the portfolio has reduced by EUR 10.8 million or 3.4% compared with the initial GBV at closing. The most recent reported GBV as of September 2018 was equal to EUR 308.8 million compared with EUR 319.6 million at issuance.
As of the October 2018 investor report, the outstanding principal amount of the Class A, Class B and Class J notes was EUR 72.3 million, EUR 10.1 million and EUR 13.4 million, respectively. The balance of the Class A notes has amortised by approximately 10.6% since issuance. The current transaction balance is EUR 95.6 million.
The portfolio continues to be mainly concentrated in the Abruzzo region of Italy with 22.9% of the portfolio by GBV located there in comparison with 23.4% at issuance.
As reported in the semi-annual servicer report from September 2018 (the servicer report), the net present value cumulative profitability ratio is 102.29%. A subordination event would occur if the ratio drops lower than 90%.
The transaction benefits from a EUR 3.2 million cash reserve that was fully funded at closing through a limited recourse loan and a EUR 100,000 recovery expense reserve funded with collections. As per the Investor Report of June 2018, the target cash reserve totalled EUR 2.89 million. The amount of the cash reserve has been reduced in proportion with the transaction’s collateral reduction as the cash reserve target amount accounts for 4% of the Class A notes’ outstanding principal amount.
The Class B Notes, which represent mezzanine debt, may not be repaid until the Class A Notes are repaid in full.
The ratings are based on DBRS’s analysis of the following analytical considerations:
--The projected recoveries of the underlying collateral;
--The historical performance and expertise of the servicer, Prelios;
--The availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses;
--The cap agreement with J.P. Morgan AG; and
--The transaction’s legal and structural features.
At issuance, DBRS’s BBB (low) and B (low) ratings assumed a haircut of 18.1% and 8.7%, respectively, to Prelios’s business plan for the portfolio.
According to the servicer report, an updated business plan estimates less cumulative Gross Disposition Proceeds (GDP) collections compared with the initial business plan. Prelios’ updated business plan has an optimistic view on the expected GPD compared with the actual collections to date. As of September 2018, the Prelios’s updated business plan estimated a EUR 13.3 million GDP collection since closing, which is 9.04% lower than the EUR 14.6 million GDP collection amount the initial business plan estimated at closing.
The servicer report stated that the actual cumulative GDP collections accounted for EUR 10.1 million during the first ten-month period after closing. The servicer’s initial business plan assumed a cumulative GDP collections of EUR 14.6 million, which is EUR 4.4 million higher than the actual amount collected so far. The servicer’s updated business plan assumed cumulative GDP collections of EUR 13.3 million, which is EUR 3.2 million higher than the actual amount collected as of today. During the same time period, DBRS estimated collections at BBB (low) equal to EUR 10.8 million, which is approximately 9% higher than the actual amount collected so far.
DBRS was informed by the servicer that the business plan’s current underperformance is mainly to the result of the delayed auction of certain large positions to the first quarter of 2019. DBRS will continue to monitor the transaction in order to verify the actual collection of those exposures.
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.
This 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 Banca Popolare di Bari S.c.p.a. and Prelios Credit Servicing S.p.A.
At the time of the initial rating, 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 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 first 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 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):
-- 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 B (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 (low) (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 lead to a downgrade of the Class B notes to 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: Mattia Pauciullo, Senior Financial Analyst, Global Structured Finance
Rating Committee Chair: Christian Aufsatz, Head of European Structured Finance, Global Structured Finance
Initial Rating Date: 5 December 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.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at firstname.lastname@example.org.