DBRS Ratings Limited (DBRS Morningstar) downgraded its rating on the Class A Notes issued by Brisca Securitisation S.r.l. (the Issuer) to BBB (low) (sf) from BBB (high) (sf) and downgraded its rating on the Class B Notes to CCC (sf) from B (low) (sf). DBRS Morningstar assigned a Negative trend to both ratings.
The transaction included the issuance of Class A, Class B, and Class J Notes (the Notes). The rating of the Class A Notes addresses timely payment of interest and ultimate payment of principal on or before the final legal maturity date and the rating of the Class B Notes addresses ultimate payment of principal and interest. DBRS Morningstar does not rate the Class J Notes.
The Notes are collateralised by an Italian nonperforming loan portfolio originated by Banca Carige S.p.A. (Carige), Banca Cesare Ponti S.p.A. (BCP), and Banca del Monte di Lucca S.p.A. (BML), together Gruppo Banca Carige (the Originator). As of closing (July 2017), the gross book value (GBV) of the loan pool was approximately EUR 961 million.
The rating downgrade follows the third annual review of the transaction and is based on the following analytical key considerations:
-- Transaction performance: assessment of the portfolio recoveries as of May 2020, with a focus on:
(1) Comparison of actual gross collections and the servicer’s initial business plan forecast;
(2) Collection performance observed over the past six months including the period following the outbreak of the Coronavirus Disease (COVID-19); and
(3) Comparison of current performance and DBRS Morningstar’s expectations.
-- Servicer’s updated business plan: received in January 2020 and compared with initial business plan displays a reduction of the total gross collection forecast.
-- Portfolio characteristics: loan pool composition as of May 2020 and evolution of its core features since issuance.
-- Transaction liquidating structure: the order of priority entails a fully sequential amortisation of the notes – i.e. the Class B Notes will begin to amortise following the full repayment of the Class A Notes and the Class J Notes will amortise following the repayment of the Class B Notes. Additionally, interest payments on the Class B Notes become subordinated to principal payments on the Class A Notes if the Cumulative Net Collection Ratio or NPV Cumulative Profitability Ratio are lower than 90%. These triggers were not breached on the June 2020 interest payment date.
-- Liquidity support: The transaction benefits from an amortising Cash Reserve providing liquidity to the structure covering against potential interest shortfall on the Class A Notes and senior fees. The Cash Reserve target amount is equal to 4.0% of the sum of Class A and Class B Notes principal outstanding and is currently fully funded.
TRANSACTION AND PERFORMANCE
According to the latest investor report dated 30 June 2020, the principal amount outstanding of the Class A, Class B, and Class J Notes was equal to EUR 163.4 million, EUR 30.5 million and EUR 11.6 million, respectively. The balance of the Class A Notes amortised by 38.9% since issuance.
As of May 2020, the transaction is performing somewhat below the servicer’s initial expectations. The actual cumulative gross collections equal EUR 146.7 million, whereas the servicer’s initial business plan estimated cumulative gross collections of EUR 150.7 million for the same period. On the contrary, the Cumulative Net Collection Ratio and the NPV Cumulative Profitability Ratio are 105.1% and 111.7% respectively, meaning that in net terms, the transaction is currently still above the initial servicer’s expectations, reflecting lower than expected costs.
In January 2020, the servicer of the transaction, which is Prelios Credit Servicing S.p.A. (Prelios), provided DBRS Morningstar with a revised business plan. In this updated business plan, Prelios assumed lower recoveries as a result of (1) auction prices clearing at lower than expected levels and (2) judicial asset appraisal values being lower than initially expected. The total cumulative gross collections from the updated business plan (including action recoveries received) account for EUR 367.3 million, which is 6.6% lower than the EUR 393.0 million expected in the initial business plan.
Without including actual collections, the expected future collections from June 2020 are now EUR 215.2 million (EUR 242.3 million in the initial business plan). DBRS Morningstar’s BBB (low) (sf) rating stress assume a haircut of approximately 11.4% to the servicer’s updated business plan for future collections.
Although as of June 2020 the transaction was performing above DBRS Morningstar’s initial BBB (high) (sf) rating stress assumptions, the decision to downgrade the ratings of the Class A and Class B Notes and assign the Negative trend is based on the observed performance trend of the transaction to date, on the analysis of the updated business plan provided by the servicer in January 2020 as well as on DBRS Morningstar’s expectations with regard to Italy’s economy and real estate markets amid the coronavirus pandemic.
The final maturity date of the transaction is 31 December 2037.
DBRS Morningstar analysed the transaction structure using Intex DealMaker.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, increases in unemployment rates and reduced investment activities. DBRS Morningstar anticipates that collections in European nonperforming loan securitisations will be disrupted in coming months and that the deteriorating macroeconomic conditions could negatively affect recoveries from nonperforming loans and the related real estate collateral. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar incorporated its expectation of a moderate medium-term decline in property prices, but gave partial credit to house price increases from 2023 onwards in noninvestment grade rating stress scenarios.
The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
For more information on DBRS Morningstar considerations for European NPL transactions and Coronavirus Disease (COVID-19), please see the following commentaries: https://www.dbrsmorningstar.com/research/362326 and https://www.dbrsmorningstar.com/research/360393
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (22 April 2020).
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 at: http://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include the Issuer and/or its agents, which comprise the updated business plan received on January 2020, updated datatape as of May 2020, detailed servicer report as of June 2020, and investor report dated 30 June 2020.
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 these ratings 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.
The last rating action on this transaction took place on 8 May 2020, when DBRS Morningstar placed the rating of the Class A and Class B Notes Under Review with Negative Implications.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.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 rating of the Class A Notes to B (high) (sf) and to a downgrade of the rating of the Class B Notes to CC (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 CCC (sf) and to a downgrade of the rating of the Class B Notes to CC (sf).
Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.
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 U.S. regulations only.
Lead Analyst: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 05 June 2017
DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Rating European Non-Performing Loans Securitisations (13 May 2020)
-- Master European Structured Finance Surveillance Methodology (22 April 2020)
-- Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (14 July 2020), https://www.dbrsmorningstar.com/research/363998/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda
-- European CMBS Rating and Surveillance Methodology (13 December 2019)
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019)
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.