Press Release

DBRS Morningstar Takes Rating Actions on Brisca Securitisation S.r.l.

Nonperforming Loans

May 11, 2023

DBRS Ratings GmbH (DBRS Morningstar) took rating actions on the notes issued by Brisca Securitisation S.r.l. (the Issuer) as follows:

-- Class A Notes confirmed at CCC (sf) with a Negative trend
-- Class B Notes downgraded to C (sf) from CC (sf), trend changed to Stable from Negative

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 on or before the legal final maturity date. The rating on the Class B Notes addresses the ultimate payment of principal and interest. DBRS Morningstar does not rate the Class J Notes.

Given the characteristics of the Class B Notes, as defined in the transaction documents, DBRS Morningstar notes that a default would most likely only be recognised at transaction maturity or early termination.

As of closing in July 2017, the Notes were backed by a EUR 961 million portfolio by gross book value, consisting of secured and unsecured Italian nonperforming loans originated by Banca Carige S.p.A., Banca Cesare Ponti S.p.A., and Banca del Monte di Lucca S.p.A. (together, Gruppo Banca Carige). The majority of loans in the portfolio defaulted between 2011 and 2016 and are in various stages of resolution.

Prelios Credit Servicing S.p.A. (Prelios or the Servicer) services the receivables while Banca Finanziaria Internazionale S.p.A. (Banca Finint; formerly Securitisation Services S.p.A.) operates as the backup servicer.

RATING RATIONALE
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 30 November 2022, focusing on: (1) a comparison between actual collections and the 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.
-- Business plan: The Servicer’s updated business plan as of November 2022, received in March 2023, and the comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of February 2023 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 net collection ratio or net present value cumulative profitability ratio are lower than 90%. The interest subordination event has been triggered since the June 2022 interest payment date. According to the servicer, the cumulative net collection ratio and net present value cumulative profitability ratio were 78.29% and 109.81% respectively, in June 2022. In December 2022, those ratios were 70.70% and 108.81%, respectively.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure covering potential interest shortfall on the Class A Notes and senior fees. The cash reserve target amount is equal to 4% of the sum of the Class A and Class B Notes’ principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from December 2022, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 103.3 million, EUR 30.5 million, and EUR 11.8 million, respectively. As of the December 2022 payment date, the balance of the Class A Notes had amortised by 61.4% since issuance and the current aggregated transaction balance was EUR 145.6 million.

As of November 2022, the transaction was performing below the Servicer’s initial business plan expectations. The actual cumulative gross collections equalled EUR 227.1 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 327.8 million for the same period. Therefore, as of November 2022, the transaction was underperforming by EUR 100.7 million (-30.7%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 265.7 million at the BBB (high) (sf) stressed scenario and EUR 306.2 million at the B (low) (sf) stressed scenario. Hence, the transaction is underperforming DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in March 2023, the Servicer delivered an updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections as of November 2022, resulted in a total of EUR 316.6 million, which is 19.4% lower than the total gross disposition proceeds of EUR 393.0 million estimated in the initial business plan. Excluding actual collections, the Servicer’s expected future collections from December 2022 account for EUR 89.6 million, which is less than the current aggregated outstanding balance of the Class A Notes, and expected to be realised over a longer period of time. In DBRS Morningstar’s CCC (sf) scenario, the Servicer’s updated forecast was only adjusted in terms of actual collections to date and timing of future expected collections. Considering senior costs and interest due on the Notes, the full repayment of Class A principal is increasingly unlikely, but DBRS Morningstar’s rating analysis considers the outperformance in relation to the net present value cumulative profitability ratio to date.

The final maturity date of the transaction is in December 2037.

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 using Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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.

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/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, Prelios, and Banca Finint which comprise, in addition to the information received at issuance, the investor report as of December 2022; the semi-annual servicer report as of November 2022; the quarterly servicer report as of February 2023; the loan-by-loan data as of February 2023; and the updated business plan received in March 2023.

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 11 May 2022, when DBRS Morningstar downgraded its ratings on the Class A Notes to CCC (sf) from B (high) (sf), downgraded its rating on the Class B Notes to CC (sf) from CCC (sf), and maintained the Negative trend on all ratings.

The lead analyst responsibilities for this transaction have been transferred to Pablo Iturriaga.

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):

-- 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 below 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 below CCC (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 C (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 C (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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Pablo Iturriaga, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 5 July 2017

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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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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