DBRS Ratings Limited (DBRS) confirmed its BBB (low) (sf) and CCC (sf) ratings of the Class A and Class B notes, respectively, issued by Ibla S.r.l. (the Issuer).
The notes were backed by a EUR 348.6 million portfolio by gross book value (GBV) consisting of secured and unsecured non-performing loans originated by Banca Agricola Popolare di Ragusa S.C.p.A. (BAPR or the Originator). The receivables are serviced by doValue S.p.A. (doValue 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 doValue.
DBRS understands that the current GBV of the portfolio, as reported in the latest semi-annual report provided by the Servicer as of March 2019, amounts to EUR 358.2 million, which is higher than the EUR 348.6 million reported at cut-off. According to the Servicer, the GBV reported at cut-off included loan principal, but not interest; with accrued interest, the GBV at the cut-off date (31 December 2017) was EUR 351.6 million. doValue is working to update the latest semi-annual report as per all the upcoming reports.
DBRS notes that the lower GBV reported at inception does not affect its recovery assumptions and is credit neutral for the transaction as DBRS’s analysis is based on recovery expectations, which are typically less than the aggregate claims against the borrowers.
The majority of loans in the portfolio defaulted between 2012 and 2016 and are in various stages of resolution. At the cut-off date, approximately 95.1% of the pool by GBV was secured and 91.7% of the secured loans by GBV benefitted from a first-ranking lien. According to the latest information provided by the Servicer in June 2019, the percentage of secured GBV of the portfolio remains almost equal at 95.1%, of which 91.7% benefits from a first-rank lien. At the cut-off date, the secured collateral was highly concentrated in Sicily (99.4% of secured GBV as of cut-off) and continues to be mainly concentrated in the same region. 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 provided by Securitisation Services S.p.A. (the Computation Agent), the actual cumulative gross collections totalled EUR 12.5 million from the cut-off date to 31 March 2019. The initial business plan (BP) provided by the Servicer assumed cumulative gross disposition proceeds (GDP) of EUR 14.1 million during the relevant collection period, which is 11.0% higher than the amount collected so far. Therefore, the transaction is underperforming by an amount of roughly EUR 1.5 million as compared with the Servicer’s initial BP. In 2019, doValue reviewed the original BP and reduced the initial GDP to EUR 162.8 million from EUR 166.8 million (-2.4%, which is a EUR 4.0 million reduction). The BP provided in 2019 assumed a cumulative GDP of EUR 12.2 million as of March 2019, which is 2.2% lower than the actual amount collected so far; therefore, the transaction is overperforming for an amount equal to EUR 0.3 million as compared with the Servicer´s BP 2019 expectations. doValue justified the reduction of the initial BP highlighting that at cut-off part of the portfolio has been statistically analysed (26% of GBV as of cut-off). While reviewing it during the boarding process, it has been found that the expected collections amount was less than the initial one. 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 period of EUR 8.1 million in the BBB (low) (sf) stressed scenario, which is EUR 4.5 million or 35.6% lower as compared with the actual cumulative gross collections (EUR 12.5 million as of March 2019) and EUR 6.0 million or 42.7% lower with respect to the initial BP estimate provided by the Servicer for the same period (EUR 14.1 million). Furthermore, at a CCC (sf) stressed scenario DBRS assumed a haircut of 0.0% to doValue’s initial BP, which is EUR 1.5 million or 11.0% higher than the actual cumulative gross collections as of March 2019.
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 September 2018, 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, doValue, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with Banca IMI S.p.A. 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, doValue. DBRS’s BBB (low) (sf) rating assumes a haircut of 26.4% to doValue’s initial BP for the portfolio, while CCC (sf) rating assumes a haircut of 0.0% to doValue’s initial BP.
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 Computation 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 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.
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 123 million at the BBB (low) (sf) 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 (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 (high) (sf).
-- Recovery Rates Used: Cumulative Base Case Recovery Amount of EUR 167 million at the CCC (sf) 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 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: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 6 September 2018
DBRS Ratings Limited
20 Fenchurch Street
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 email@example.com.