Press Release

DBRS Morningstar Confirms Credit Rating on Ortles 21 S.r.l., Changes Trend to Stable from Negative

Nonperforming Loans

August 07, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its BBB (sf) credit rating on the Class A Notes issued by Ortles 21 S.r.l. (the Issuer). DBRS Morningstar changed the trend on the credit rating to Stable from Negative.

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 on or before the transaction’s final maturity date. DBRS Morningstar does not rate the Class B or Class J Notes also issued under this transaction.

As of the 30 April 2021 and 31 August 2021 selection dates, the Class A Notes were backed by a EUR 1.83 billion portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming loans originated by Crédit Agricole Italia S.p.A., Crédit Agricole FriulAdria S.p.A. and Credito Valtellinese S.p.A. (together the Sellers or the Originators). doValue S.p.A. (doValue) and Cerved Credit Management S.p.A. (Cerved and, jointly, the Special Servicers) service the receivables, while DoNext S.p.A (formerly Italfondiario, the Master Servicer) acts as the master servicer for the transaction. Zenith Service S.p.A (Zenith or the Backup Servicer) has been appointed to carry out the servicing activities in case of termination of the Special Servicers.

CREDIT 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 Special Servicers’ 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 Servicers’ updated business plan as of December 2022, delivered in June 2023 and approved in July 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 is lower than 90%. As of the April 2023 interest payment date, these triggers had not been breached with actual figures at 269.56% and 129.46%, respectively, according to the Master Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure by covering potential interest shortfalls 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.

TRANSACTION AND PERFORMANCE
According to the latest payment report from April 2023, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 223.1 million, EUR 40.0 million, and EUR 14.3 million, respectively. As of the April 2023 payment date, the balance of the Class A Notes had amortised by 34.4% since issuance and the aggregated transaction balance was EUR 277.4 million.

As of March 2023, the transaction was performing above the Special Servicers’ business plan expectations. The actual cumulative gross collections equalled EUR 134.3 million, whereas the Servicers’ initial business plan estimated
cumulative gross collections of EUR 50.5 million for the same period. Therefore, as of March 2023, the transaction was overperforming by EUR 83.8 million (165.8%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 41.1 million in the BBB (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, in June 2023, the Master Servicer delivered an updated portfolio business plan, which was approved in July 2023. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 112.7 million as of December 2022, resulted in a total of EUR 554.8 million, which is 2.4% lower than the total gross disposition proceeds of EUR 568.5 million estimated in the initial business plan. Excluding actual collections, the Special Servicers’ expected future collections from April 2023 now amount to EUR 432.3 million. The updated DBRS Morningstar BBB (sf) credit rating stresses assume a haircut of 23.4% to the Special Servicers’ updated business plan, considering future expected collections from April 2023.

The final maturity date of the transaction is October 2045.

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 document(s) 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/416784/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 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 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.

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.

The sources of data and information used for this credit rating include the Issuer, the Master Servicer, and Zenith, which comprise, in addition to the information received at issuance, the payment report as of April 2023; the semi-annual servicer report as of March 2023; and the updated business plan received in June 2023 and approved 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 rating, 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.

This is the first credit rating action since the Initial Rating Date.

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

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 rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- Recovery rates used: Cumulative base case recovery amount of approximately EUR 331.3 million at the BBB (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 confirmation of the Class A Notes at BBB (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 BB (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://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.

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

Lead Analyst: William Taliento, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 17 December 2021

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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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