DBRS Ratings Limited (DBRS) confirms the following ratings to Class A notes and Class B notes issued by 4Mori Sardegna S.r.l. (the Issuer):
-- Class A notes at BBB (low) (sf)
-- Class B notes at B (sf)
The notes were backed by a EUR 1.04 billion portfolio by gross book value (GBV) consisting of unsecured and secured non-performing loans (NPLs) originated by Banco di Sardegna S.p.A. (the Originator). The majority of loans in the portfolio defaulted between 2008 and 2017 and are in various stages of resolution. The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios or the Servicer). A backup master servicer, Securitisation Services S.p.A., was appointed and will act as a servicer in case of termination of the appointment of Prelios.
At cut-off date, approximately 53% of the pool by GBV was secured and 94.4% of the secured loans by GBV benefitted from a first-ranking lien. According to the latest information provided by the Servicer in March 2019, the percentage of secured GBV of the portfolio remains almost equal at 52%. At closing, the secured collateral was highly concentrated in the Italian regions of Sardinia (83.5% of secured GBV as of cut-off date) and Lazio (11.0% of secured GBV as of cut-off date), and continues to be mainly concentrated in the same regions as at the cut-off date. In its analysis, DBRS assumed that all loans are worked out through an auction process, which generally has the longest resolution timeline.
According to the most-recent semi-annual investor report, the actual cumulative collections totalled EUR 20.8 million for the first six months after closing. The initial business plan provided by the Servicer, as detailed in the servicing report, assumed cumulative gross disposition proceeds (GDP) of EUR 21.5 million by this point, which is 3% higher than the amount collected so far. Therefore, the transaction is slightly underperforming by an amount of roughly EUR 0.7 million as compared with the Servicer’s initial business plan. At issuance, DBRS estimated a GDP for the same six month period of EUR 16.4 million at a BBB (low) (sf) stressed scenario, which is EUR 5.0 million lower as compared with the initial business plan estimate provided by the Servicer during the same period (HC 23.44%). Furthermore, at a B (sf) stressed scenario, DBRS estimated a GDP for the same six month period of EUR 18.2 million, which is EUR 3.3 million lower (HC 15.24%) as compared with the initial business plan GDP estimate during the same period.
The coupon on the Class B notes, which represent the mezzanine debt, may be repaid prior to principal of the Class A notes unless certain performance-related triggers are breached. As per the latest investor report from January 2019, no subordination events have occurred.
The ratings are based on DBRS’s analysis of 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 Banca IMI and the transaction’s legal and structural features. DBRS’s BBB (low) (sf) and B (sf) rating stresses assume haircuts of approximately 23.8% and 15.4% 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: “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/ 333487 /rating-sovereign-governments.pdf.
The sources of data and information used for these ratings include the Servicer and the Backup Master Servicer.
DBRS did not rely upon third-party due diligence 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 were 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):
-- Recovery Rates Used: Cumulative Base Case Recovery Amount of approximately EUR 307 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).
-- 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 B (low) (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 (high) (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
Initial Rating Date: 22 June 2018
Rating Committee Chair: Christian Aufsatz, Managing Director
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
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.