Press Release

DBRS Morningstar Assigns Provisional Rating of BBB (sf) with Negative Trend to Scalabis STC S.A. (compartment Panda)

Nonperforming Loans

August 02, 2021

DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional rating of BBB (sf) with a Negative trend to the EUR 80,000,000 Class A Notes issued by Scalabis STC S.A. (compartment Panda) (the Issuer).

The rating can be finalised upon the receipt of an execution version of the transaction documents. To the extent that the final documents differ materially from the documents that were provided at the time of this rating, DBRS Morningstar may assign different final ratings to the notes.

The transaction entails the issuance of Class A, Class B, and Class J notes (collectively, the Notes) backed by a mixed pool of Portuguese nonperforming secured and unsecured loans (the Portfolio) originated by Banco BPI, S.A., Banco Comercial Português, S.A., Caixa Geral de Depósitos, S.A., Caixa Leasing e Factoring - Sociedade Financeira de Crédito, S.A. and Novo Banco, S.A. (collectively, the Original Lenders).

As of the 30 April 2021 economic effective date (or cut-off date), the gross book value (GBV) of the Portfolio was approximately EUR 1,896 million. The Portfolio is mostly composed of unsecured loans, representing approximately 90.5% of the GBV, with secured loans (including loans with associated cash in court) representing the remaining 9.5% of the GBV. At the economic effective date, the portfolio was mainly represented by corporate borrowers (69.0% by GBV), and the properties securing the loans in the secured portion of the portfolio was mainly composed of residential properties (39.2% by property value). Algebra Capital Lda. (Algebra or the Servicer) has been appointed as the servicer for both the secured and unsecured receivables.

The transaction benefits from a Cash Reserve, sized at 3.0% of the principal outstanding of the Class A notes, and a Recovery Expenses Cash Reserve of EUR 50,000, both fully funded with part of the proceeds from the initial collections. On each interest payment date, the Cash Reserve and the Recovery Expenses Cash Reserve will be part of the available funds applied in accordance with the applicable priority of payments and will be replenished up to their respective target amounts.

The rating addresses the timely payment of interest and ultimate repayment of principal on the Class A Notes. DBRS Morningstar did not rate the Class B or Class J notes.

DBRS Morningstar based its rating on an analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the servicer, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, and the transaction’s legal and structural features. DBRS Morningstar’s BBB (sf) rating stress scenario assumes a haircut of approximately 41% to the servicer’s initial business plan for the portfolio.

The final maturity date of the transaction is October 2075.

DBRS Morningstar analysed the transaction cash flow structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have resulted in some cases in an economic contraction, increases in unemployment rates, and reduced investment activities. DBRS Morningstar anticipates that collections in European NPL securitisations will continue to be disrupted in the coming months and that the deteriorating macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collateral. The rating is 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; however, partial credit to house price increases from 2023 onwards is given in noninvestment grade scenarios. The Negative trend reflects the ongoing uncertainty amid the coronavirus pandemic.

On 16 April 2020, DBRS Morningstar published a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Nonperforming Loans Securitisations” (19 May 2021).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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 this rating include secured historical performance data provided by the Servicer on 26 April 2021 (with properties sold between 2010 and 2021), unsecured historical performance data provided by the Seller on 26 April 2021 (historical recovery curves from static pool of unsecured loans over a period of 62 months), and a business plan and loan tape shared on 24 June 2021 by the Servicer.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

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 rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

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 confirm the rating (the Base Case):

-- Recovery Rates Used: Cumulative Base Case recovery amount of approximately EUR 107 million at the BBB (sf) stress level, a 5% and 10% decrease in the 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 (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 BB (low) (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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Alberto Cruces de la Rosa, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President, Credit Practices Group
Initial Rating Date: 2 August 2021

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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