Press Release

DBRS Morningstar Downgrades and Confirms Ratings on BCC NPLs 2019 S.r.l.

Nonperforming Loans

July 14, 2023

DBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on the notes issued by BCC NPLs 2019 S.r.l. (the Issuer):

-- Class A Notes downgraded to BBB (low) (sf) from BBB (sf) with a Negative trend
-- Class B Notes confirmed at CCC (sf) with a Negative trend

The transaction represents the issuance of Class A, Class B, and Class J Notes (collectively, the Notes) backed by a mixed pool of Italian nonperforming secured and unsecured loans originated by 68 Italian banks (collectively, the Originators). The credit rating assigned to the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final maturity date of the transaction, while the credit rating assigned to the Class B Notes addresses the ultimate payment of both interest and principal on or before the final maturity date. DBRS Morningstar does not rate the Class J Notes also issued under this transaction.

The gross book value (GBV) of the loan pool was approximately EUR 1.32 billion as of the 31 December 2018 selection date. The securitised portfolio is composed of secured loans, representing approximately 73.8% of the GBV, with unsecured loans representing the remaining 26.2% of the GBV. Residential and industrial real estate properties represent 44.2% and 16.2% of the pool by first-lien real estate value, respectively.

The receivables are serviced by doValue S.p.A. (doValue or the Special Servicer). doNext S.p.A. acts as the master servicer while Banca Finanziaria Internazionale S.p.A. (formerly Securitisation Services S.p.A.) operates as the backup servicer.

CREDIT RATING RATIONALE
The credit rating actions 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 as of December 2022, received in June 2023, 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: 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 net cumulative collection ratio or the present value cumulative profitability ratio is lower than 90%. These triggers were not breached on the January 2023 interest payment date (IPD), with the actual figures at 93.0% and 109.1%, respectively, according to the Special Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure by covering potential interest shortfall on the Class A Notes and senior fees. The cash reserve target amount is equal to 3% of the Class A Notes’ principal outstanding balance and is currently fully funded.
-- Interest rate risk: The transaction is exposed to interest rate risk in a rising interest rate environment due to an increasing strike rate in the interest rate cap agreement that slows down the redemption of the Class A Notes.

TRANSACTION AND PERFORMANCE
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 253.6 million, EUR 53.0 million, and EUR 13.2 million, respectively. As of the January 2023 payment date, the balance of the Class A Notes has amortised by 28.6% since issuance and the current aggregated transaction balance was EUR 319.8 million.

As of December 2022, the transaction was performing below the Special Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 148.0 million at the end of December, whereas the Special Servicer’s initial business plan estimated cumulative gross collections of EUR 153.6 million for the same period. Therefore, as of December 2022, the transaction was underperforming by EUR 5.6 million (-3.7%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 100.2 million at the BBB (sf) stressed scenario and EUR 148.2 million at the CCC (sf) stressed scenario. Therefore, as of December 2022, the transaction was performing above DBRS Morningstar’s initial stressed expectations in the BBB (sf) scenario, but below the expectations in the CCC (sf) scenario.

Pursuant to the requirements set out in the receivable servicing agreement, in June 2023, the Special Servicer delivered an updated portfolio business plan.

The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 148.0 million as of December 2022, results in a total of EUR 562.2 million, which is 13.1% lower than the total gross disposition proceeds of EUR 646.8 million estimated in the initial business plan.

Excluding actual collections, the Special Servicer’s expected future collections from January 2023 now amount to EUR 414.2 million. The updated DBRS Morningstar BBB (low) (sf) credit rating stress assumes a haircut of 17.4% to the Servicer’s updated business plan, considering future expected collections from January 2023. In DBRS Morningstar’s CCC (sf) scenario, the Servicer’s updated forecast was only adjusted in terms of the actual collections to date and the timing of future expected collections.

The final maturity date of the transaction is in January 2044.

DBRS Morningstar’s credit rating on the Class A and Class B Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this Press Release.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416785/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 credit 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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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 credit ratings include the Issuer, doValue and Banca Finanziaria Internazionale S.p.A., which comprise, in addition to the information received at issuance, the investor report as of January 2023; the semiannual Servicer report as of December 2022; the quarterly Servicer report as of March 2023; and the updated business plan received in June 2023.

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

At the time of the initial credit ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 14 July 2022, when DBRS Morningstar confirmed its BBB (sf) credit rating on the Class A Notes, confirmed its CCC (sf) credit rating on the Class B Notes, and maintained its Negative trends on the Class A and Class B Notes.

Information regarding DBRS Morningstar credit 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 credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):
-- Recovery rates used: Cumulative base case recovery amount of approximately EUR 342.3 million and EUR 418.5 million at the BBB (low) (sf) and CCC (sf) stress level, 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 downgrade of the Class A Notes to B (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 CCC (high) (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class B Notes 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 B Notes below CCC (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 credit 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://registers.esma.europa.eu/cerep-publication/. 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 credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Clarice Baiocchi, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 19 December 2019

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

The credit 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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