Press Release

DBRS Morningstar Upgrades Ratings on Marathon SPV S.r.l. and Changes Trend on Class A Notes to Stable from Positive

Nonperforming Loans

February 28, 2023

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the notes issued by Marathon SPV S.r.l. (the Issuer) as follows:

-- Class A Notes to A (sf) from BBB (sf)
-- Class B Notes to BBB (high) (sf) from BB (low) (sf)

DBRS Morningstar also changed the trend on the Class A Notes to Stable from Positive. The trend on the Class B Notes remains Stable.

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

As of the 30 September 2019 cut-off date, the Notes were backed by a EUR 5.03 billion portfolio by gross book value (GBV) consisting of Italian unsecured nonperforming loans (NPLs). According to the latest information provided by the special servicer in December 2022, the current GBV of the portfolio is EUR 4.8 billion and approximately 18.0% of the loans by GBV are linked to promissory notes (cambiali).

Hoist Italia S.r.l. (Hoist or the special servicer) services the receivables. Banca Finint S.p.A. (Banca Finint) acts as the master servicer. A backup servicer, Centotrenta Servicing S.p.A., was appointed.

RATING RATIONALE
The rating upgrades follow a review of the transaction and are based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 31 December 2022, focusing on: (1) a comparison between actual collections and the special servicer’s initial business plan forecast; (2) the collection performance observed over recent months; and (3) a comparison between the current performance and DBRS Morningstar’s expectations.
-- Updated business plan: The special servicer’s updated business plan received in December 2022 and the comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of December 2022 and the evolution of its core features since issuance.
-- Transaction liquidating structure: Until a first-level subordination event occurs, the Class A amortisation percentage is set at 90% of the issuer available funds, allowing some leakage of collections to junior items in the preacceleration order of priority of payments. The first-level subordination event occurs when the cumulative collection ratio is less than 95%, at which point the amortisation of the Notes is fully sequential and the Class B Notes begin to amortise following the full repayment of the Class A Notes. Additionally, interest payments on the Class B Notes are made prior to the principal on the Class A Notes until the second-level subordination event occurs, which is triggered when the cumulative collection ratio is less than 80%. These triggers were not breached on the January 2023 interest payment date, when the actual ratio was 104.8%.
-- Liquidity: the transaction benefits from an amortising cash reserve providing liquidity to the structure, covering potential interest shortfalls on the Class A Notes and senior fees. The cash reserve target amount is equal to 3.0% of the Class A Notes' outstanding principal and is currently fully funded.
-- The exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

According to the latest investor report from January 2023, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 66.9 million, EUR 8.5 million, and EUR 16.9 million, respectively. Since issuance, the balances of the Class A Notes and Class B Notes have amortised by 76.7% and 74.8%, respectively. The current aggregated transaction balance is EUR 92.2 million.

As of December 2022, the transaction was performing above the special servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 315.5 million whereas the special servicer’s initial business plan estimated cumulative gross collections of EUR 300.9 million for the same period. Therefore, as of December 2022, the transaction was overperforming by EUR 14.7 million (4.9%) compared with the special servicer’s initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 208.5 million at the BBB (sf) stressed scenario and EUR 236.0 million at the B (high) (sf) stressed scenario. Therefore, as of December 2022, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

In December 2022, the special servicer delivered an updated portfolio business plan in line with the 2021 release. The updated portfolio business plan combined with the actual cumulative gross collections of EUR 296.0 million as of September 2022 resulted in a total of EUR 580.8 million, which is 3.5% higher than the total gross disposition proceeds of EUR 560.9 million estimated in the initial business plan. Excluding actual collections, the special servicer’s expected future collections from January 2023 were EUR 267.2 million. The updated DBRS Morningstar rating stress assumes a haircut of 56.8% at the A (sf) and 54.7% at the BBB (high) (sf) stress scenarios to the special servicer’s updated business plan, considering future expected collections from January 2023. The upgrades address the transaction’s current positive performance and improved credit enhancement. The Notes may pass higher rating stress scenarios; however, DBRS Morningstar believes that higher ratings would not be commensurate with the risk of the transaction considering the potential higher variability of NPLs’ cash flows and the exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

The final maturity date of the transaction is in October 2034.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

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 surveillance section of 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/401817/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 these ratings include the Issuer, Hoist, and Banca Finint which comprise, in addition to the information received at issuance, the investor report as of January 2023; the quarterly servicer report as of December 2022; the loan-level data report as of December 2022; and the updated business plan.

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 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 3 December 2021, when DBRS Morningstar confirmed its rating on the Class A Notes at BBB (sf) and changed the trend to Positive from Stable as well as upgraded its rating on the Class B Notes to BB (low) (sf) from B (high) (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

-- Recovery rates used: Cumulative base case recovery amount of approximately EUR 115.4 million and EUR 121.0 million at the A (sf) and BBB (high) (sf) stress levels, respectively, 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 confirmation of the Class A Notes at A (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Class A Notes at A (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a confirmation of the Class B Notes at BBB (high) (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Class B Notes at BBB (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: 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.

These ratings are 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: 5 December 2019

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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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