Press Release

DBRS Morningstar Confirms Credit Rating on Futura 2019 S.r.l.; Changes Trend to Negative from Stable

Nonperforming Loans

July 26, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its BBB (high) (sf) credit rating on the Class A Notes issued by Futura 2019 S.r.l. (the Issuer) and changed the trend on the credit rating to Negative from Stable.

The transaction represents the issuance of Class A, Class B, and Class J Notes (collectively, the Notes). The credit 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 Class J Notes.

As of the 30 June 2019 selection date, the Notes were backed by a EUR 1.26 billion gross book value (GBV) portfolio sold by Futura SPV S.r.l. (the seller) and originally purchased from 53 Italian banks in 2018. The securitised portfolio comprised secured loans representing 51.8% of the GBV, and unsecured loans, representing the remaining 48.2% of the GBV.

The receivables are serviced by Guber Banca S.p.A. (Guber or the servicer). Centotrenta Servicing S.p.A. operates as the backup servicer in the transaction.

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 30 June 2023, 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.
-- Updated business plan: The servicer’s updated business plan as of May 2023, received in July 2023, and the comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of June 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 gross cumulative collection ratio or the present value cumulative profitability ratio are lower than 100%. These triggers were breached for the first time on the June 2023 collection date, with the actual figures at 82.6% and 107.2%, respectively, and the interest subordination event will occur on the next payment date (31 July 2023).
-- 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 4.5% of the Class A Notes’ principal outstanding balance and is currently fully funded.
-- Interest rate impact: The transaction benefits from over hedging in a rising interest rate environment due to a low strike rate in the interest rate cap agreement as well as a higher cap notional amount compared with the outstanding balance of the Class A Notes, which increases the cash inflow received from the hedging counterparty.

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 67.8 million, EUR 37.0 million, and EUR 8.0 million, respectively. As of the January 2023 payment date, the balance of the Class A Notes has amortised by 57.1% since issuance and the current aggregated transaction balance was EUR 112.8 million.

As of June 2023, the transaction was performing below the servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 155.3 million (including EUR 1.6 million indemnities) whereas the servicer’s initial business plan estimated cumulative gross collections of EUR 188.1 million for the same period. Therefore, as of June 2023, the transaction was underperforming by EUR 32.7 million (17.4%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 129.1 million at the BBB (sf) stressed scenario. Therefore, as of June 2023, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in July 2023, the servicer delivered an updated portfolio business plan.

The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 150.8 million as of May 2023, results in a total of EUR 244.9 million, which is 9.2% lower than the total gross disposition proceeds of EUR 269.8 million estimated in the initial business plan. The peak expectations for the first half of 2023 collection period were revised down materially to EUR 19.9 million in the updated business plan from EUR 89.7 million in the initial business plan.

Including actual collections until May 2023, the servicer’s expected total collections from January 2023 now amount to EUR 107.0 million. The updated DBRS Morningstar BBB (high) (sf) credit rating stress assumes a haircut of 22.6% to the servicer’s updated business plan, considering actual collections plus 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 July 2044.

DBRS Morningstar’s credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

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 this rating include the Issuer, Guber, and Centotrenta Servicing SpA, which comprise, in addition to the information received at issuance, the investor report as of January 2023; the semiannual servicer report as of June 2023; the loan-by-loan report as of December 2022; and the updated business plan received in July 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 this credit rating 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 2 June 2022, when DBRS Morningstar upgraded its credit rating on the Class A Notes to BBB (high) (sf) from BBB (sf), assigned a Stable trend, and removed the Under Review with Positive Implications status of the 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 82.9 million at the BBB (high) (sf) rating 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 downgrade of the Class A Notes to BB (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 B (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 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://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 credit rating is 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: 16 December 2019

DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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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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