Press Release

DBRS Morningstar Places the Ratings of 14 European NPL Transactions Under Review with Negative Implications, and Assigns Negative Trend to 15 Transactions

Nonperforming Loans

May 08, 2020

DBRS Ratings Limited and DBRS Ratings GmbH (DBRS Morningstar) have placed the ratings assigned to the following classes of securities issued in the context of 14 European nonperforming loan (NPL) transactions Under Review with Negative Implications:

Popolare Bari NPLS 2016 S.r.l.
--Class A rated BBB (high) (sf)
--Class B rated B (high) (sf)

Popolare Bari NPLS 2017 S.r.l.
--Class A rated BBB (low) (sf)
--Class B rated B (low) (sf)

Siena NPL 2018 S.r.l.
--Class A rated BBB (sf)

Maggese S.r.l.
--Class A rated BBB (low) (sf)

Aragorn NPL 2018 S.r.l.
--Class A rated BBB (low) (sf)
--Class B rated CCC (sf)

Leviticus SPV S.r.l.
--Class A rated BBB (sf)

Brisca Securitisation S.r.l.
--Class A rated BBB (high) (sf)
--Class B rated B (low) (sf)

Juno 1 S.r.l.
--Class A rated BBB (low) (sf)

Maior SPV S.r.l.
--Class A rated BBB (low) (sf)

2Worlds S.r.l.
--Class A rated BBB (low) (sf)
--Class B rated B (low) (sf)

Ibla S.r.l.
--Class A rated BBB (low) (sf)
--Class B rated CCC (sf)

Belvedere SPV S.r.l
--Class A rated BBB (low) (sf)

European Residential Loan Securitisation 2018-1 DAC
--Class A rated A (sf)
--Class B rated BBB (sf)

BCC NPLs 2018-2 S.r.l.
--Class A rated BBB (low) (sf)
--Class B rated CCC (sf)

Concurrently, DBRS Morningstar also assigned a Negative trend to the ratings of the following classes of securities:

4Mori Sardegna S.r.l.
--Class A rated BBB (low) (sf)
--Class B rated B (sf)

Juno 2 S.r.l.
-- Class A rated BBB (low) (sf)

BCC NPLs 2019 S.r.l.
-- Class A rated BBB (sf)
--Class B rated CCC (sf)

ISEO SPV S.r.l.
--Class A rated BBB (sf)

Marathon SPV S.r.l.
--Class A rated BBB (sf)
--Class B rated B (high) (sf)

Futura 2019 S.r.l.
-- Class A rated BBB (sf)

POP NPLs 2019 S.r.l.
--Class A rated BBB (sf)
--Class B rated CCC (sf)

European Residential Loan Securitisation 2019-NPL2 DAC
--Class A rated A (sf)
--Class B rated BBB (high) (sf)
--Class C rated BBB (low) (sf)

ProSil Acquisition S.A.
-- Class A rated BBB (low) (sf)

Hefesto, STC, S.A. (Evora Finance)
--Class A rated BBB (sf)
--Class B rated B (low) (sf)

Hefesto STC, S.A. (Project Guincho)
--Class A rated BBB (low) (sf)
--Class B rated CCC (sf)

Ares Lusitani STC, S.A. (Gaia)
--Class A rated BBB (low) (sf)
--Class B rated CCC (sf)

Fino 1 Securitisation S.r.l.
--Class A rated BBB (high) (sf)
--Class B rated BB (high) (sf)
--Class C rated BB (sf)

European Residential Loan Securitisation 2019-NPL1 DAC
-- Class A Notes rated A (sf)
-- Class B Notes BBB (high) (sf)
-- Class C Notes BB (sf)

Grand Canal Securities 2 DAC
-- Class A Notes rated A (sf)
-- Class B Notes rated BBB (low)
-- Class C Notes rated BB (low) (sf)
-- Class D Notes B (low) (sf)

KEY RATING DRIVERS AND CONSIDERATIONS

In a commentary published on 30 April 2020, titled, “European NPL Transactions’ Risk Exposure to Coronavirus (COVID-19) Effects” (https://www.dbrsmorningstar.com/research/360393/european-npl-transactions-risk-exposure-to-coronavirus-covid-19-effects), DBRS Morningstar discussed the overall risk exposure of the European NPL sector to the Coronavirus Disease (COVID-19) and provided a framework for identifying the NPL transactions that are most at risk and likely to be affected by the fallout of the pandemic on the economy. The primary conclusion is that in the short term all European NPL transactions are expected to be at minimum affected by shortfalls resulting from delayed cash collections and impact in terms of recovery values. However, DBRS Morningstar anticipates that each NPL transaction will be affected differently based on factors which are country-specific (i.e. local governments’ coronavirus measures; macroeconomic downturn impact on the real estate market and external disruptions) and on transaction-specific factors which determine a different level of vulnerability to liquidity shocks, as further detailed below.

Considering the above framework, the Under Review with Negative Implications status and Negative trend have been assigned based on the following drivers and considerations:
-- Concerns about the liquidity pressure deriving from the disruption to short- and medium- to long-term recoveries and delays in the implementation of the servicer’s strategy because of the measures local governments have undertaken in response to coronavirus.
-- Potential decrease in sale prices and liquidation values of NPL collateral in the medium- to long-term because of the effects of the deteriorating macroeconomic conditions on the real estate market.
-- Analytical review of the following factors specific to each European NPL transaction in order to determine its risk exposure to the medium- to long-term effects of the crisis, and specifically:
(1) Concentration of receivables towards corporate and small and medium-size enterprise (SME) borrowers.
(2) Real estate collateral features and weight of commercial real estate assets (in particular retail and hospitality).
(3) Evolution of the loan pool composition since issuance and whether any material change or a deterioration of its quality occurred.
(4) Transaction performance to date, with a focus on the combined assessment of net present value profitability ratio and the gross cumulative collection ratio observed to date.
(5) Expected level of cash flow generation envisaged under the updated business plan formulated by the special servicers and comparison with the initial forecasts.
(6) Available forms of liquidity support to mitigate temporary shortfalls on the payment of senior costs and interest on senior notes.
(7) Robustness of the subordination trigger mechanisms and deferral provisions envisaged in respect of the payment of mezzanine/junior interest and servicing fees.
(8) Structure of the payments` order of priority and senior costs composition.
(9) Special servicer exposure to operational risks and business disruptions.

DBRS Morningstar will consider the reported performance the European NPL transactions in order to assess the medium-long term effects of coronavirus. Additionally, DBRS Morningstar will consider the macroeconomic developments relative to the outbreak of the pandemic, including the duration and severity of the crisis on the local economies with exposure to NPL transactions.

DBRS Morningstar typically endeavours to resolve the status of ratings Under Review with Negative Implications as soon as appropriate. If continued heightened market uncertainty and volatility persists, DBRS Morningstar may extend the Under Review status for a longer period of time.

On 16 April 2020, the DBRS Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (22 April 2020).

DBRS Morningstar is undertaking a review and will remove the ratings from this status as soon as it is appropriate.

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

These may be found at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the most recent performance data provided in the investor reports, servicer reports and updated business plans (where available), as well as the feedback provided by the portfolio servicers in relation to actual recoveries, expected forecast, and contingency plans following the spread of coronavirus.

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 one or more 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 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.

Ratings assigned by DBRS Ratings Limited and DBRS Ratings GmbH are subject to EU and U.S. regulations only.

The lead analyst, committee chair, initial rating date, and last rating action date for each transaction is listed as a separate disclosure document associated with this PR.

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

Select ratings are Under Review with Negative Implications designation. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. If continued heightened market uncertainty and volatility persists, DBRS Morningstar may extend the Under Review status for a longer period of time. Sensitivity analysis is not applicable.

Generally, 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 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: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor,
London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

This press release was amended on 11 May 2020 to specify that a sensitivity analysis was not required and to add a missing methodology link.

This press release was amended on 3 June 2020 to add the following disclosure: "Ratings assigned by DBRS Ratings Limited and DBRS Ratings GmbH are subject to EU and U.S. regulations only."

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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