DBRS Morningstar Confirms BBB (low) (sf) Rating of Belvedere SPV S.r.l.

DBRS Ratings Limited (DBRS Morningstar) confirmed the BBB (low) (sf) rating of the Class A notes issued by Belvedere SPV S.r.l. (the Issuer). DBRS Morningstar does not rate the Class B or Class J notes in this transaction.

At issuance, the notes were backed by a EUR 2.5 billion portfolio by gross book value (GBV) consisting of unsecured and secured nonperforming loans sold by Gemini SPV S.r.l., Sirius SPV S.r.l., Antares SPV S.r.l., SPV Project 1702 S.r.l., and Adige SPV S.r.l. (collectively, the sellers) to Belvedere SPV S.r.l.

The receivables are serviced by Prelios Credit Servicing S.p.A. (PRECS) and Bayview Italia S.r.l., which act as the special servicers. PRECS also operates as the master servicer in the transaction. A backup servicer, Securitisation Services S.p.A., was appointed and will act as the servicer in case the special servicers’ appointments are terminated.

According to the most recent investor report issued in May 2019, the outstanding principal amounts of the Class A, Class B, and Class J notes were equal to EUR 305 million, EUR 70 million, and EUR 95 million, respectively.

The actual cumulative gross collections after closing were equal to EUR 54.0 million, as of December 2019. The initial business plan provided by the two servicers assumed combined total gross collections for EUR 70.1 million during the same period, which is 23.0% higher than the amount collected so far, including initial collections available at issuance.

At issuance, DBRS Morningstar estimated gross disposition proceeds, as of December 2019, equal to EUR 44.7 million in the BBB (low) scenario, which is 17.2% lower than the actual cumulative gross collections to date. DBRS Morningstar observes that as per the latest semiannual collection period, the majority of the proceeds resulted from Bayview collections, with EUR 40.9 million, which is higher than the EUR 26.1 million expected in their initial business plan. PRECS has collected EUR 13.1 million, which is significantly lower than the EUR 44.0 million expected in their initial business plan. According to PRECS, this underperformance is due to missing and incorrect information in the debtors’ contacts database together with other gaps on documentation, which are affecting their ability to contact debtors with targeted phone campaigns and slowing down extrajudicial collections. PRECS is working to remedy this and will reflect the situation in the next updated business plan, which is expected in March 2020.

As reported in the semiannual servicer report from December 2019, the net present value cumulative profitability ratio is 269% for PRECS and 92% for Bayview while the cumulative collection ratio is 31% for PRECS and 148% for Bayview.

The transaction benefits from a EUR 12.8 million amortising cash reserve that was fully funded with proceeds from the issuance of the Class J notes. As per the investor report of May 2019, the reserve was still funded at the target level of EUR 12.8 million.

Although the gross amount of collections is above DBRS Morningstar’s BBB (low) scenario, the transaction is significantly underperforming in comparison with the servicers’ combined initial business plans. DBRS Morningstar will closely monitor the transaction and reassess its performance based on the second investor report and the updated business plan expected early next year.

DBRS Morningstar based its ratings on its analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the servicers as well as the transaction’s legal and structural features.

The transaction’s final maturity date is in November 2038.

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 these ratings include the servicers and the computation agent.

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 28 June 2019 when DBRS Morningstar confirmed its rating of the Class A Notes at BBB (low) (sf), following an amendment to the transaction.

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 to the parameters used to determine the rating (the Base Case):

-- Recovery Rates Used: Cumulative base case recovery amount of approximately EUR 406 million at the BBB (low) stress level, a 5% and 10% decrease of the cumulative base case recovery amount.
-- 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 (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 (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: 21 December 2018

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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.