Press Release

DBRS Morningstar Confirms Rating on Grogu SPV S.r.l., Changes Trend to Positive from Stable

Nonperforming Loans

June 12, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its BBB (high) (sf) rating on the Class A Notes issued by Grogu SPV S.r.l. (the Issuer). DBRS Morningstar changed the trend on the rating to Positive from 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 repayment of principal. DBRS Morningstar does not rate the Class B or the Class J notes.

As of the 31 May 2021 cutoff date, the notes were backed by a EUR 3.1 billion portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming loans mostly originated by UBI Banca Unione di Banche Italiane S.p.A. (UBI) and currently owned by Intesa Sanpaolo S.p.A. (ISP) and BPER Banca S.p.A. (BPER) (together, the sellers) as a result of the merger by absorption of UBI into ISP.

Intrum Italy S.p.A. (Intrum) and Prelios Credit Solutions S.p.A.(PRECS) (together, the servicers) service the receivables. PRECS has been appointed as the backup servicer and will also act as the master servicer in case of a termination of the agreement with the master servicer, Banca Finanziaria Internazionale S.p.A.

RATING RATIONALE
The confirmation follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 31 March 2023, focusing on: (1) a comparison between actual collections and the servicers’ initial business plan forecasts; (2) the collection performance observed over recent months; and (3) a comparison between the current performance and DBRS Morningstar’s expectations.
-- Updated business plans: The servicers’ updated business plans as of December 2022, received in March 2023 and April 2023, and a comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of March 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 begin to 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 the net present value cumulative profitability ratio are lower than 90% and 85% respectively. As of the April 2023 interest payment date, these triggers had not been breached with actual figures at 257.7% and 154.5%, respectively, according to the Master Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve and a recovery expenses cash reserve providing liquidity to the structure and covering a potential interest shortfall on the Class A notes and senior fees.
The cash reserve target amount is equal to 4.0% of the Class A notes’ principal outstanding balance and is currently fully funded.
-- The exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

TRANSACTION AND PERFORMANCE
According to the latest investor report from April 2023, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 280.1 million, EUR 37.0 million, and EUR 3.0 million, respectively. As of the April 2023 payment date, the balance of the Class A notes had amortised by 39.1% since issuance and the aggregate transaction balance was EUR 320.1 million.

As of March 2023, the transaction was performing above the servicers’ business plan expectations. The actual cumulative gross collections equalled EUR 228.4 million whereas the servicers’ initial business plans estimated
cumulative gross collections of EUR 92.3 million for the same period. Therefore, as of March 2023, the transaction was overperforming significantly by EUR 136.1 million (147.4%) compared with the initial business plans expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 52.1 million in the BBB (high) (sf) stressed scenario. Therefore, as of March 2023, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, PRECS and Intrum delivered the first updated portfolio business plans in March 2023 and April 2023, respectively. The updated portfolio business plans, combined with the actual cumulative gross collections of EUR 188.5 million as of December 2022, result in a total of EUR 786.8 million, which is 0.4% lower than the total gross disposition proceeds of EUR 789.7 million estimated in the initial business plans. Considering the net present value cumulative profitability ratio outperformance to date, this implies a significant reduction of expected collections from the remaining exposures. Excluding actual collections, the servicers’ expected future collections from April 2023 amount to EUR 585.1 million. The updated DBRS Morningstar BBB (high) (sf) rating stresses assume a haircut of 23.2% to the servicers’ updated business plan, considering the future expected collections.

Considering the faster than expected collections and the high profitability ratio registered since issuance as well as the increased subordination, the rated notes now pass higher rating stresses in the cash flow analysis. However, considering the early stage of the transaction and the updated business plans DBRS Morningstar does not yet deem this performance trend to be sustainable in the medium to long term, and confirmed the current rating assigned to the Class A notes. However, considering the consistent overperformance and the high profitability level of the transaction, a Positive rating trend was assigned to the Class A notes.

The final maturity date of the transaction is January 2042.

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.

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 this rating include the Issuer, the Servicers, and Banca Finanziaria Internazionale S.p.A. which comprise, in addition to the information received at issuance, the investor report as of April 2023; the updated business plans as of December 2022; the quarterly Master Servicer report as of March 2023; and the quarterly Servicer reports as of 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 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 is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to William Taliento.

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 449.3 million at the BBB (high) (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 confirmation of the Class A 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 A Notes at BBB (high) (sf).

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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: William Taliento, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 December 2021

DBRS Ratings GmbH
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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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