Press Release

DBRS Morningstar Confirms Ratings of Ibla S.r.l. and Assigns Negative Trends; Removes Under Review with Negative Implications Status

Nonperforming Loans

November 04, 2020

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the Class A and Class B notes issued by Ibla S.r.l. (the Issuer) at BBB (low) (sf) and CCC (sf), respectively, resolving the Under Review with Negative Implications status of the ratings, which was assigned on 8 May 2020 and maintained on 6 August 2020.
At the same time, DBRS Morningstar assigned a Negative trend to both ratings.

The transaction included the issuance of Class A, Class B, and Class J notes (collectively, the Notes). The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal, while the rating on the Class B Notes addresses the ultimate payment of both interest and principal. DBRS Morningstar does not rate the Class J Notes.

As of the 24 August 2018 transfer date, the notes were backed by a EUR 348.6 million by gross book value (GBV) portfolio consisting of secured and unsecured Italian nonperforming loans (NPLs) originated by Banca Agricola Popolare di Ragusa S.C.p.A. (BAPR, or the Originator). doValue S.p.A. (doValue, or the Servicer) services the receivables. A backup servicer, Securitisation Services S.p.A., was appointed and will act as a servicer if the appointment of doValue is terminated.

The majority of loans in the portfolio defaulted between 2012 and 2016 and are in various stages of resolution. As of the transfer date, 95.1% of the pool by GBV was secured while the unsecured loans represented the remaining 4.9% by GBV. According to the latest information provided by the servicer in September 2020, the percentage of secured GBV of the portfolio is 95.0%, while the unsecured loans represent the remaining 5.0%. At closing, the loan pool was highly concentrated in Sicily (99.4% by GBV), and continues to be mainly concentrated there.

RATING RATIONALE
The rating confirmations follow the second annual review of the transaction and are based on the following analytical considerations:
-- Transaction performance: assessment of portfolio recoveries as of 30 September 2020, focusing on: (1) a comparison between actual gross collections and the servicer’s initial business plan forecast; (2) the collection performance observed over the past six months, including the period following the outbreak of the Coronavirus Disease (COVID-19); and (3) a comparison between the current performance and DBRS Morningstar’s expectations.
-- The Servicer’s updated business plan: received in 2020 and compared with doValue’s initial collection expectations.
-- Portfolio characteristics: loan pool composition as of 30 September 2020 and 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 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 (NPV) Cumulative Profitability Ratio are lower than 85%. These triggers were not breached on the October 2020 interest payment date, with the actual ratios as of 30 September 2020 being 88.3% and 141.1%, respectively.
-- Liquidity support: the transaction benefits from an amortising cash reserve providing liquidity to the structure, covering potential interest shortfalls on the Class A Notes and senior fees. The cash reserve target amount is equal to 7.5% of the principal outstanding on the Class A Notes and is currently fully funded.

According to the latest payment report of October 2020, the principal amount outstanding on the Class A, Class B, and Class J notes was equal to EUR 63.1 million, EUR 9.0 million, and EUR 3.5 million, respectively. The balance of Class A Notes has amortised by approximately 25.8% since issuance. The current aggregated principal outstanding balance of the Notes is EUR 75.6 million.

As of September 2020, the transaction was performing below the Servicer’s initial expectations. The actual cumulative gross collections equal EUR 35.2 million, whereas doValue’s initial business plan estimated cumulative gross collections of EUR 39.8 million for the same period. Therefore, as of 30 September 2020, the transaction was underperforming by roughly EUR 4.6 million compared with the Servicer’s initial expectations (-11.7%).

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 18.5 million in the BBB (low) (sf) stressed scenario, while in the CCC (sf) scenario DBRS Morningstar did not apply any stress to the Servicer’s initial expectations. Therefore, as of 30 September 2020 the transaction is performing above DBRS Morningstar’s stressed expectations. However, DBRS Morningstar assigned a Negative trend to the Class A and Class B notes as it continues to closely monitor the transaction’s performance as well as the development of the macroeconomic and real estate scenarios within the current market environment.

In 2020, doValue provided DBRS Morningstar with a revised business plan. In this updated business plan, doValue assumed lower recoveries compared with the Servicer’s initial expectations. The total cumulative gross collections from the updated business plan amount to EUR 158.5 million, which is 5.0% lower compared with the EUR 166.8 million expected in the initial business plan.

Without including actual collections, the expected future collections from October 2020 now amount to EUR 119.3 million (against EUR 127.0 million in the initial business plan). DBRS Morningstar’s BBB (low) (sf) rating stress assumes a haircut of 17.3% to the Servicer’s updated business plan, considering future expected collections. DBRS Morningstar’s CCC (sf) rating scenario assumes no haircut to the Servicer’s updated business plan and was only adjusted in terms of timing.

In its rating review, DBRS Morningstar used the Italian residential market value decline (MVD) rates outlined in the “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” methodology published on 21 September 2020. DBRS Morningstar notes that the currently proposed Italian residential MVDs in the “European RMBS Insight: Italian Addendum - Request for Comment” methodology published on 2 November 2020 are not likely to lead to a further rating action. For details, see the following methodology: https://www.dbrsmorningstar.com/research/369177/european-rmbs-insight-italian-addendum-request-for-comment.

The final maturity date of the transaction is 30 April 2037.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp economic contraction, increases in unemployment rates, and reduced investment activities. DBRS Morningstar anticipates that collections in European NPL securitisations will continue to be disrupted in the coming months and that the deteriorating macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collateral. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar assumed reduced collections for the next quarter and incorporated its revised expectation of a moderate medium-term decline in residential property prices, albeit partial credit to house price increases from 2023 onwards is given in noninvestment grade scenarios.

On 16 April 2020, DBRS Morningstar published a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European NPL transactions and Coronavirus Disease (COVID-19), please see the following commentaries: https://www.dbrsmorningstar.com/research/362326 and https://www.dbrsmorningstar.com/research/360393.

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 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 at: https://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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the Issuer, the Servicer, and the backup master servicer, which comprise an updated data tape as of 30 September 2020, detailed performance data as of September 2020, updated business plan provided in February 2020, and semiannual payment report as of October 2020.

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

At the time of the initial ratings, 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 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.

The last rating action on this transaction took place on 6 August 2020, when DBRS Morningstar maintained the Under Review with Negative Implications status of the Class A and Class B notes.

The lead analyst responsibilities for this transaction have been transferred to Sebastiano Romano.

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

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to confirm the ratings (the Base Case):

-- Recovery Rates Used: Cumulative base case recovery amount of approximately EUR 98.6 million at the BBB (low) (sf) stress 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 downgrade of the Class A Notes to BB (high) (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 (sf).

-- Recovery Rates Used: Cumulative base case recovery amount of approximately EUR 119.3 million at the CCC (sf) stress 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 the rating of the Class B Notes being maintained at CCC (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to the rating of the Class B Notes being maintained at CCC (sf).

Generally, the conditions that lead to the assignment of a Negative or Positive trend are 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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

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

Lead Analyst: Sebastiano Romano, Senior Financial Analyst
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 6 September 2018

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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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