DBRS Morningstar Confirms Rating of Leviticus SPV S.r.l.

DBRS Ratings Limited (DBRS Morningstar) confirmed its BBB (sf) rating of the Class A notes issued by Leviticus SPV S.r.l. (the Issuer).

The rating on the Class A notes addresses timely payment of interest and ultimate payment of principal. DBRS Morningstar does not rate the Class B or Class J notes.

The notes are backed by an Italian portfolio consisting of secured and unsecured nonperforming loans (NPLs) originated by Banco BPM S.p.A. (Banco BPM or the Originator), mostly defaulted between 2012 and 2018. Credito Fondiario S.p.A. (Credito Fondiario) services the receivables.

As of June 2018 (the transaction cut-off date), the portfolio had a total outstanding balance (GBV) of EUR 7,384.8 million and the secured loans accounted for approximately 66.9% of GBV, with the majority of them being first-lien ranking (62.0% of GBV). The pool of real estate assets securing the portfolio comprised mixed types of properties and included residential assets (40.0% of the total updated market value (UMV) as of the cut-off date), land and agricultural real estate (15.5% of UMV), commercial spaces/offices (7.3% of UMV), and industrial properties (6.5% of UMV).

According to the most-recent payment report issued in January 2020, the principal amount outstanding of the Class A, Class B, and Class J notes was equal to EUR 1,183.9 million, EUR 221.5 million, and EUR 248.8 million, respectively. As of January 2020, the balance of the Class A notes amortised by approximately 17.8% since issuance and the aggregated transaction balance was equal to EUR 1,654.3 million.

The actual cumulative gross collections after the cut-off date were equal to EUR 352.4 million as of December 2019. The initial business plan provided by the servicer assumed total gross collections for EUR 371.3 million during the same period, which is 5.1% higher than the amount collected so far.

At issuance, DBRS Morningstar estimated cumulative gross collections as of December 2019 of EUR 225.4 million, which is 56.3% lower than the actual cumulative gross proceeds collected in the same period.

The transaction benefits from a cash reserve that was fully funded at closing through a limited recourse loan granted by the Originator for an initial amount of EUR 66.5 million (equal to 4% of the initial balance of the Class A and B notes) , which started amortising from the second payment date. According to the latest payment report dated January 2020, the cash reserve amounted to EUR 58.7 million, which is in line with the target amount for the relevant period.

Since the cut-off date, the GBV has been reduced by EUR 644.9 million. The most-recent reported GBV as of December 2019 was EUR 6,739.9 million compared with EUR 7,384.8 million at the cut-off date. In terms of geographical distribution, the portfolio continues to be mainly concentrated in the same areas as at issuance, with northern Italian regions such as Lombardy and Emilia Romagna representing the largest share of receivables in the pool (52.7% of the current outstanding balance).

The ratings are based on DBRS Morningstar’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the servicer, Credito Fondiario, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with Banco Santander S.A. and Crédit Agricole Corporate and Investment Bank S.A., and the transaction’s legal and structural features.

The final maturity date of the transaction is 31 July 2040.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 this rating include information from Credito Fondiario.

DBRS Morningstar did not rely upon third-party due diligence in order 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 this rating to be of satisfactory quality.

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

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

The lead analyst responsibilities for this transaction have been transferred to Laura Lombardo.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is 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 1.88 billion at the BBB (sf) stress level; a 5% and 10% decrease of the Cumulative 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 (low) (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).

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: Laura Lombardo, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 6 February 2019

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

-- Master European Structured Finance Surveillance Methodology
-- Rating European Non-Performing Loans Securitisations
-- 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
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.