DBRS Ratings Limited (DBRS) confirmed the BBB (low) (sf) rating of the Class A notes issued by Juno 1 S.r.l. (the Issuer).
The notes were backed by a EUR 956 million portfolio by gross book value (GBV) consisting of secured and unsecured non-performing loans (NPLs) originated by Banca Nazionale del Lavoro S.p.A. (the Originator; rated A (high) with a Stable trend by DBRS). DBRS understands that the current outstanding GBV of the portfolio (as reported by the servicer in the investors reporting) amounts to EUR 1.07 billion, which is higher than the EUR 956.5 million reported at issuance. According to the servicer, the GBV reported at closing included loan principal, but not interest; with accrued interest, the whole debt transferred to the Issuer on 18 July 2018 was actually EUR 1.11 billion.
DBRS notes that the lower GBV reported at inception does not affect its recovery assumptions and is credit neutral for the transaction as DBRS analysis is based on recovery expectations, which are typically less than the aggregate claims against the borrowers.
The majority of loans – 71.6% of GBV (EUR 956.5 million as stated at inception on 18 July 2018) – in the portfolio defaulted between 2013 and 2016 and were in various stages of resolution. The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios or the Servicer). A Backup Servicer, Securitisation Services S.p.A., was appointed and will act as a servicer in case of termination of Prelios’s appointment.
At issuance, approximately 37.5% of the pool by GBV (EUR 956.5 million as stated at inception on 18 July 2018) of the loans was secured and 92.8% of these secured loans by GBV (EUR 956.5 million as stated at inception on 18 July 2018) benefitted from a first-ranking lien.
According to the most recent semi-annual investor report, the actual cumulative collections totalled EUR 31.3 million since closing. The initial business plan (BP) provided by the Servicer, as detailed in the servicing report, assumed cumulative gross disposition proceeds (GDP) of EUR 18.9 million during the relevant collection period, which is 65.9% lower than the amount collected so far. Therefore, the transaction is overperforming by roughly EUR 12.4 million compared with the Servicer’s initial BP.
At issuance, DBRS estimated a GDP for the same period of EUR 13.8 million in a BBB (low) (sf) scenario, which is EUR 17.5 million lower compared with the actual cumulative collections.
Payment of principal on the Class A notes is subordinated to interest payments on the Class B notes if certain performance triggers have not been breached. As per the latest investor report in July 2019, no subordination events have occurred.
The rating is 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 BNP Paribas SA (rated AA (low) with a Stable trend by DBRS); and the transaction’s legal and structural features.
Both the DBRS timing and value stresses are based on the historical repossessions data of the Servicer, Prelios. DBRS’s BBB (low) (sf) rating assumes a haircut of 23.2% to Prelios’s initial BP for the portfolio.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology”.
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/ 333487 /rating-sovereign-governments.pdf.
The sources of data and information used for the rating includes the Servicer and the Backup 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 the rating 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 Alessio Pignataro.
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 EUR 171.9 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 (low) (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).
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: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 26 July 2018
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
-- Master European Structured Finance Surveillance Methodology
-- 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 email@example.com.