Press Release

DBRS Morningstar Confirms Rating of ISEO SPV S.r.l.; Changes Trend to Stable from Negative

Nonperforming Loans

May 06, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed its BBB (low) (sf) rating of the Class A Notes issued by ISEO SPV S.r.l. (the Issuer) and changed the trend on the rating to Stable from Negative.

The transaction represents the issuance of the Class A, Class B, and Class J Notes (collectively, the Notes). The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal. DBRS Morningstar does not rate the Class B or Class J Notes.

As of the 31 March 2019 economic effective date, the Notes were backed by a EUR 858 million portfolio by gross book value consisting of unsecured and secured nonperforming loans (NPLs) originated by Unione di Banche Italiane S.p.A.

Since the 4 December 2019 transfer date, the receivables have been serviced by doValue S.p.A. (the Servicer) with Italfondiario S.p.A acting as the master servicer. A backup servicer, Banca Finanziaria Internazionale S.p.A (formerly, Securitisation Services S.p.A.), was also appointed.

RATING RATIONALE
The confirmation follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: assessment of portfolio recoveries as of 31 December 2021, focusing on: (1) a comparison between actual collections and the Servicer’s initial business plan forecast; (2) the collection performance observed over recent months, including the period following the outbreak of the Coronavirus Disease (COVID-19); and (3) a comparison between the current performance and DBRS Morningstar’s expectations.
-- The Servicer’s updated business plan as of December 2021, received in April 2022, and the comparison with the initial collection expectations.
-- Portfolio characteristics: loan pool composition as of December 2021 and the 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 Collection Ratio or the Net Present Value (NPV) Cumulative Profitability Ratio are lower than 90%. These triggers were not breached on the January 2022 interest payment date, with the actual figures being 86.0% and 108.3%, respectively, according to the Servicer.
-- 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 the Class A Notes principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2022, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 224.8 million, EUR 25.0 million, and EUR 13.5 million, respectively. As of the January 2022 payment date, the balance of the Class A Notes had amortised by 32.9% since issuance and the current aggregated transaction balance is EUR 263.3 million.

As of December 2021, the transaction was performing below the Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 129.2 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 144.8 million for the same period. Therefore, as of December 2021, the transaction was underperforming by EUR 15.7 million (-10.8%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 103.6 million at the BBB (sf) stressed scenario. Therefore, as of December 2021, the transaction is performing above DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in April 2022, the Servicer delivered an updated portfolio business plan.

The updated portfolio business plan, combined with the actual cumulative gross collections as of December 2021, results in a total of EUR 465.6 million, which is 10.0% lower than the total gross disposition proceeds of EUR 517.2 million estimated in the initial business plan. Excluding actual collections, the Servicer’s expected future collections from January 2022 account for EUR 336.5 million. The updated DBRS Morningstar BBB (low) (sf) rating stress assumes a haircut of 11.4% to the Servicer’s updated portfolio business plan, considering future expected collections.

The final maturity date of the transaction is in July 2039.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures had caused an economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. For this transaction, DBRS Morningstar incorporated its expectation of a moderate medium-term decline in commercial real estate prices for certain property types.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 24 March 2022. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/394150/baseline-macroeconomic-scenarios-for-rated-sovereigns-march-2022-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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/384146 and https://www.dbrsmorningstar.com/research/360393.

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: “Master European Structured Finance Surveillance Methodology” (8 February 2022).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for this rating include the Issuer, doValue S.p.A and Banca Finint, which comprise, in addition to the information received at issuance, the investor report as of January 2022; the semiannual servicer report as of December 2021; the quarterly servicer report as of March 2022; the loan-by-loan data as of December 2021; and the updated business plan received in April 2022.

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

At the time of the initial ratings, 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.

The last rating action on this transaction took place on 2 March 2021, when DBRS Morningstar downgraded its rating on the Class A Notes to BBB (low) (sf) from BBB (sf), assigned a Negative trend, and removed the Under Review with Negative Implications status of the rating.

The lead analyst responsibilities for this transaction have been transferred to Clarice Baiocchi.

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):

-- 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 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 A 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: https://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: Clarice Baiocchi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 16 December 2019

DBRS Ratings GmbH
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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: https://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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