DBRS Morningstar Confirms Ratings of Fino 1 Securitisation S.r.l.

DBRS Ratings Limited (DBRS Morningstar) confirmed its BBB (high) (sf), BB (high) (sf) and BB (sf) ratings of the Class A, Class B and Cass C notes issued by Fino 1 Securitisation S.r.l. (the Issuer).

The notes are backed by a portfolio of secured and unsecured Italian non-performing loans originated by UniCredit S.p.A. (UniCredit), with a gross book value (GBV) of EUR 5.4 billion as of the 30 June 2017 cut-off date. The loans are serviced by doValue S.p.A. (doValue or the special servicer).

As of the cut-off date, the portfolio was composed of secured commercial and residential loans (51.9% of the total GBV) and unsecured loans (48.1% of the total GBV) mostly due by Italian small and medium-sized enterprises (93.0% of the total GBV). The secured loans included in the portfolio were mainly backed by residential and commercial properties distributed across Italy with 39.2% of the total real estate value in Northern Italy, 26.2% in Central Italy and 34.5% in Southern Italy and the Islands. The majority of loans in the portfolio (approximately 75.6% of the total GBV) defaulted between 2010 and 2017 and are in various stages of the resolution process.

In its analysis, DBRS Morningstar assumed that all loans would have been disposed through a judicial resolution strategy. Both the DBRS Morningstar timing and value stresses were based on the historical repossessions data of the servicer, doValue. DBRS Morningstar’s BBB (high) (sf), BB (high) (sf) and BB (sf) ratings assumed haircuts of 23.9%, 19.5% and 19.0%, respectively, to the servicer’s initial business plan for the portfolio.

According to the most-recent investor report issued in October 2019, the principal amount outstanding of the Class A, Class B and Class C notes was EUR 380.2 million, EUR 29.6 million and EUR 40.0 million, respectively. The balance of the Class A Notes amortised by approximately 42% since issuance. The Class D Notes do not receive any of the Issuer’s available funds until the Class A, Class B and Class C notes are repaid in full. The outstanding transaction balance is EUR 500.1 million.

As reported in the most-recent quarterly servicer report of September 2019, the actual cumulative gross collections after closing totalled EUR 476.8 million. The initial business plan provided by the special servicer assumed EUR 490.0 million of cumulative gross collections during the relevant period, which is 2.7% higher than the amount collected so far.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 204.8 million in the BBB (high) scenario, EUR 220.9 million in the BB (high) scenario and EUR 222.1 million in the BB stressed scenario, all of which are lower than actual cumulative gross collections to date.

Since closing and due to the liquidation of residential and commercial properties, as well as the judicial and amicable workout of unsecured loans, the total GBV of the portfolio has been reduced by EUR 286.1 million. The most-recent reported GBV as of September 2019 was EUR 5.1 billion compared with EUR 5.4 billion at issuance. The portfolio continues to be mainly concentrated in the same areas as at issuance, with Northern Italy representing the largest concentration of assets in the pool with 42.3% by GBV (42.9% at issuance).

The transaction benefits from a cash reserve that has a target amount equal to 5% of the Class A Notes outstanding balance. Its total amount at issuance was EUR 32.5 million, which was fully funded at closing through a limited recourse loan. According to the most-recent investor report issued in October 2019, the outstanding balance of the cash reserve amount was EUR 20.4 million.

The ratings are based on DBRS Morningstar’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of doValue, the available liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with HSBC France and the transaction’s legal and structural features. The transaction’s final maturity date is in October 2045.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.

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.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

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 Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for the ratings include information from doValue and UniCredit.

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

At the time of the initial rating, 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 were 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 23 November 2018 when DBRS Morningstar confirmed its ratings of the Class A, Class B and Class C notes.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies are available on www.dbrs.com.

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 at the BBB (high) (sf) stress level, a 5.0% and 10.0% decrease of the cumulative base case recovery rate.

-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 5.0%, 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 10.0%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (low) (sf).

-- Recovery Rates Used: Cumulative base case recovery amount at the BB (high) (sf) stress level, a 5.0% and 10.0% decrease of the cumulative base case recovery rate.

-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 5.0%, 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 10.0%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (low) (sf).

-- Recovery Rates Used: Cumulative base case recovery amount at the BB (sf) stress level, a 5.0% and 10.0% decrease of the cumulative base case recovery rate.

-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 5.0%, 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 10.0%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (low) (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 November 2017

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating European Non-Performing Loans Securitisations
-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- European CMBS Rating and Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.