DBRS Ratings Limited (DBRS) confirmed its BBB (high) (sf) and B (high) (sf) ratings of the Class A and Class B notes issued by Popolare Bari 2016 NPLS S.r.l.
The notes were backed by a EUR 480 million portfolio by gross book value (GBV) consisting of secured and unsecured non-performing loans (NPLs) originated by Banca Popolare di Bari, Banca Tercas and Banca Caripe. All entities were merged into Banca Popolare di Bari S.c.p.A. (BPB or the originator). The majority of loans in the portfolio defaulted between 2012 and 2014 and are 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 the appointment of Prelios.
At cut-off, approximately 63.4% of the pool by GBV was secured. The secured collateral was concentrated within the South and Island areas of Italy, which represents 65.9% of open market value (OMV). Within these areas, the Abruzzo region had the highest concentration of properties, representing 32.4% of OMV. Most of the secured loans benefitted from a first lien over the collateral (approximately 81.1% by OMV). Moreover, the majority of loans in the portfolio were granted to corporate borrowers (approximately 74.0% of GBV).
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 payment report provided by Securitisation Services S.p.A. (the Calculation Agent), the actual cumulative collections totalled EUR 53.7 million for the first three years after closing. The expected business plan (BP) provided by the servicer assumed cumulative gross disposition proceeds (GDP) of EUR 57.5 million during the relevant collection period, which is 6.6% higher than the amount collected so far. Therefore, the transaction is underperforming by an amount of roughly EUR 3.8 million as compared with the servicer’s initial BP. In 2019, Prelios reviewed the original BP and reduced the initial GDP to EUR 181.8 million from EUR 197.2 million (-7.8%, a EUR 15.4 million reduction). Prelios justified the reduction of the initial BP highlighting three main causes: (1) no bids at auction, (2) potential indemnity and (3) lower collections because of an accelerated recovery (extra-judicial approach). Prelios mentioned that such discrepancy might reduce in the future. DBRS will continue to monitor the servicer´s performance and potential future revisions of the servicer’s recovery expectations.
At issuance, DBRS estimated a GDP for the same three-year period of EUR 25.2 million in the BBB (high) (sf) and of EUR 41.3 million in the B (high) (sf) stressed scenarios, which are EUR 32.4 or -56.3% and EUR 16.1 million or -28.0% respectively lower as compared with the initial BP estimate provided by the servicer for 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 payment report from June 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 J.P. Morgan Securities pls 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) and B (high) (sf) ratings assumed a haircut of 20.3% and 13.5% to Prelios’s initial BP for the portfolio.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings 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 these ratings include the servicer and the Calculation Agent.
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.
The last rating action on this transaction took place on 10 August 2018 when DBRS confirmed the ratings of the notes.
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 157.0 million at the BBB (high) stress level, a 5.0% and 10.0% decrease of the Cumulative Base Case Recovery Rate.
-- Recovery Rates Used: Cumulative Base Case Recovery Amount of EUR 170.6 million at the B (high) stress level, a 5.0% and 10.0% decrease of the Cumulative Base Case Recovery Rate.
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 5.0%, 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 10.0%, 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 5.0%, 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 10.0%, ceteris paribus, would each 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: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 12 August 2016
DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Registered in England and Wales: No. 7139960
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 firstname.lastname@example.org.