DBRS Ratings Limited (DBRS Morningstar) confirmed its BBB (low) and B (low) (sf) ratings of the Class A and Class B notes, respectively, issued by Popolare Bari NPLs 2017 S.r.l. (the issuer).
The notes were backed by a EUR 319.9 million portfolio by gross book value (GBV) consisting of unsecured and secured nonperforming 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).
All loans in the portfolio defaulted between 2000 and 2016 and are in various stages of resolution. Prelios Credit Servicing S.p.A. (Prelios) services the portfolio. A backup servicer, Securitisation Services S.p.A., has also been appointed and will act as the servicer in case Prelios’ appointment is terminated.
According to the most recent investor report issued in October 2019, the principal amount outstanding of the Class A, Class B, and Class C notes was equal to EUR 68.6 million, EUR 10.1 million, and EUR 13.4 million, respectively.
The actual cumulative gross collections after closing was equal to EUR 21.1 million, as of October 2019. The initial business plan provided by the servicer assumed total gross collections for EUR 24.9 million during the same period, which is 18.1% higher than the amount collected so far. The updated business plan as of 2019 assumed gross collections for EUR 21.6 million during the same period, which is 2.4% higher than the amount collected so far.
At issuance, DBRS Morningstar estimated gross disposition proceeds for the same period of EUR 18.2 million in the BBB (low) scenario and EUR 18.3 million in the B (low) scenarios, which are 13.7% and 13.2% lower than the actual cumulative gross collections to date, respectively.
DBRS Morningstar observes that as per the latest semiannual collection period, the majority of the proceeds resulted from note sales with a 13.1% discount compared with the target price set by the servicer as per the most updated business plan.
As reported in the semiannual servicer report from September 2019, the net present value cumulative profitability ratio reduced to 97%. A subordination event would occur if the ratio drops below 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 October 2019, the target cash reserve totalled EUR 2.78 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.
Although the gross amount of collections is above DBRS Morningstar BBB (low) and B (low) scenarios, the transaction is significantly underperforming compared with both the servicer’s initial business plan and the updated business plan. DBRS Morningstar will closely monitor the transaction and reassess its assumptions based on the next servicer business plan, which is expected at the end of March 2020.
The ratings are based on DBRS Morningstar’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the servicer as well as the transaction’s legal and structural features.
The transaction’s final maturity date is in October 2037.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.
DBRS Morningstar 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
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.
DBRS Morningstar did not rely upon third-party due diligence to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings were of satisfactory quality.
DBRS Morningstar 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 5 December 2018 when DBRS Morningstar confirmed its ratings of the Class A and Class B notes.
Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- DBRS Morningstar 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 Morningstar 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 Morningstar 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 Morningstar 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 Morningstar historical 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.
The lead analyst responsibilities for this transaction have been transferred to Alessio Pignataro.
Lead Analyst: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Rating Date: 5 December 2019
Initial Rating Date: 5 December 2017
DBRS Ratings Limited
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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 Morningstar 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.
This press release was amended on 7 January 2020 to add the following missing disclosure: "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."