DBRS Ratings Limited (DBRS Morningstar) confirmed its BBB (low) (sf) rating of the Class A notes issued by Juno 2 S.r.l. (the Issuer).
The rating of the Class A notes addresses the timely payment of interest and the ultimate payment of principal. DBRS Morningstar does not rate the Class B or Class J notes.
The notes are backed by an Italian portfolio consisting of secured and unsecured nonperforming loans originated by Banca Nazionale del Lavoro S.p.A. (BNL or the Originator), mostly defaulted between 2013 and 2016. Prelios Credit Servicing S.p.A. (PRECS or Prelios) services the receivables, while Securitisation Services S.p.A. operates as the backup servicer and computation agent for the transaction.
As of the September 2018 cutoff date, the portfolio had a gross book value (GBV) of EUR 968.2 million. DBRS Morningstar understands that the outstanding GBV of the portfolio as of December 2019, as reported in the latest semiannual servicer report, amounted to EUR 1,094.0 million, which is higher than the EUR 968.2 million reported at cutoff. According to the servicer, the GBV reported at closing included the loan principal, but not interests; with accrued interests, the whole debt transferred to the Issuer on 30 January 2019 amounted to EUR 1,154.3 million.
DBRS Morningstar notes that the lower GBV reported at cutoff does not affect its recovery assumptions and is credit neutral for the transaction as its analysis is based on recovery expectations, which are typically less than the aggregate claims against the borrowers.
As of September 2018, the secured loans accounted for approximately 73.4% of GBV, with the majority of them being of first-lien ranking (78.5% of secured GBV). The pool of real estate assets securing the portfolio comprised mixed types of properties and included residential assets (35.0% of the total updated property value (UPV) as of the cutoff date), commercial, hotel, and offices (21.4% of UPV), other assets (19.2% of UPV), industrial properties (13.8% of UPV), and land, agricultural, and ancillary units (10.7% of UPV). In terms of geographical distribution, the secured collateral was mainly concentrated in Lazio (21.1% of UPV), and was homogeneously spread across macro areas (35.3% North, 34.1% Center, and 30.6% South & Islands by UPV).
According to the most recent investor report issued in January 2020, the principal amount outstanding of the Class A, Class B, and Class J notes was EUR 161.6 million, EUR 48.0 million, and EUR 12.8 million, respectively. As of January 2020, the balance of the Class A notes amortised by approximately 20.8% since issuance and the aggregated transaction balance was EUR 222.4 million.
According to the most recent semiannual servicer report, the actual cumulative gross collections after the cutoff date were EUR 55.3 million as of December 2019. The initial business plan (BP) provided by the servicer assumed total gross collections of EUR 42.1 million during the same period, which is 23.8% lower than the amount collected so far. Therefore, the transaction is overperforming by roughly EUR 13.2 million compared with the servicer’s initial BP.
At issuance, DBRS Morningstar estimated cumulative gross collections as of December 2019 of EUR 31.0 million in a BBB (low) (sf) scenario, which is 43.8% lower than the actual cumulative gross proceeds collected in the same period.
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 January 2020, no subordination events have occurred.
The rating is based on DBRS Morningstar’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; and the transaction’s legal and structural features.
The final maturity date of the transaction is 31 July 2039.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating 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 this rating include information from Prelios Credit Servicing S.p.A. and Securitisation Services S.p.A.
DBRS Morningstar did not rely upon third-party due diligence in order 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 this rating to be of satisfactory quality.
DBRS Morningstar 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 Morningstar ratings, including definitions, policies and methodologies, is 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):
-- Recovery Rates Used: Cumulative Base Case Recovery Amount of approximately EUR 276 million at the BBB (low) (sf) stress level; a 5% and 10% decrease of the Cumulative Base Case Recovery Rate.
-- 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 BB (low) (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 (high) (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.
Lead Analyst: Mirco Iacobucci, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 8 February 2019
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology
-- 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
-- Operational Risk Assessment for European Structured Finance Originators
-- 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 email@example.com.