Press Release

DBRS Morningstar Assigns Rating of BBB (sf) with a Negative Trend to Titan SPV S.r.l.

Nonperforming Loans

December 28, 2020

DBRS Ratings GmbH (DBRS Morningstar) assigned a BBB (sf) rating with a Negative trend to the EUR 90,500,000 Class A notes issued by Titan SPV S.r.l. (the Issuer).

As of the 31 December 2019 economic effective date, the notes were backed by a EUR 335.4 million portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming leases originated by Alba Leasing S.p.A., Banco BPM S.p.A., and Release S.p.A. (the Originators or the Sellers). Prelios Credit Servicing S.p.A. (Prelios, PRECS, or the Servicer) has been appointed as the servicer of the receivables and Banca Finanziaria Internazionale S.p.A (FinInt or the Backup Servicer) has been appointed as the backup servicer for Prelios.

The Issuer acquired the portfolio at the transfer date of 12 December 2020. The disposable assets were transferred to Zeus LeaseCo S.r.l. (the LeaseCo) on the same date. The sellers entered into a preliminary sale and purchase agreement with Zeus LeaseCo S.r.l. in order to transfer, until the 30 June 2021 last transfer date, the nonimmediately transferrable assets (i.e., nonrepossessed assets, repossessed assets that have not yet regularised, and assets subject to specific law or contractual provisions). In the case a nonimmediately transferrable asset is not transferred within the 30 June 2021 last transfer date, the relevant seller shall return the purchase price received and indemnify the Issuer for a certain amount. As of the transfer date of 12 December 2020, 32.8% of the assets had not been transferred.

The securitised portfolio is mostly composed of secured leases, representing approximately 90.5% of the GBV, of which approximately 96.9% by GBV is backed by real estate assets, with unsecured leases (exposures for which the relevant assets had been sold) representing the remaining 9.5% of the GBV. At the 31 December 2019 economic effective date, the properties securing the leases in the portfolio mainly comprised industrial properties (54.0% by updated real estate value). The secured collateral was highly concentrated in northern regions of Italy (71.8% by updated real estate value) with Lombardy representing 25.2% by real estate value.

The transaction benefits from approximately EUR 10.3 million of collections recovered between the 31 December 2019 economic effective date and November 2020, which will be distributed in accordance with the priority of payments on the first interest payment date.

The transaction includes a cash reserve, sized at 5.0% of the principal outstanding of the Class A notes, an Issuer and LeaseCo recovery expenses cash reserve, all fully funded with the proceeds of a limited recourse loan of EUR 7.41 million granted to the Issuer by Banco BPM S.p.A. The limited recourse loan also funds the EUR 200,000 retention amounts. At each interest payment date, the cash reserve amount and the recovery expenses cash reserves will be part of the available funds for the waterfall and will be replenished in the waterfall up to the respective target amounts.

Interest on the Class B notes, which represent mezzanine debt, will be paid ahead of the principal of the Class A notes unless certain performance-related triggers are breached.

The rating addresses the timely payment of interest and the ultimate repayment of principal on the Class A notes.

DBRS Morningstar based its rating on an analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the servicer, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, and the transaction’s legal and structural features. DBRS Morningstar’s BBB (sf) rating stress assumes a haircut of approximately 28.8% to the servicer’s initial business plan for the portfolio.

The final maturity date of the transaction is 31 January 2041.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have resulted in a sharp economic contraction, increases in unemployment rates, and reduced investment activities. DBRS Morningstar anticipates that collections in European nonperforming loan (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 rating is 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 incorporated its expectation of a moderate medium-term decline in property prices.

On 16 April 2020, DBRS Morningstar published a set of macroeconomic scenarios for the 2020-22 period in selected economies. These scenarios were last updated on 2 December 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/370672/global-macroeconomic-scenarios-december-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 rating is: “Rating European Non-Performing Loans Securitisations” (13 May 2020).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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 this rating include historical performance data provided by the Servicer on 22 October 2020 (historical sale data for secured leases sold, and historical yearly recovery curves from static pool of unsecured loans over a period of 17 years, and timing to repossess and sell), and business plan and loan tape first shared on 15 October 2020 (with last update shared on 16 December 2020), by the Servicer and the Sellers, respectively.

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

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 rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to confirm the rating (the Base Case):

-- Recovery Rates Used: Cumulative Base Case recovery amount of approximately EUR 109.4 million at the BBB (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 BBB (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 BB (high) (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 Analyst, Credit Ratings
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 28 December 2020

DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction can be found at: https://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: 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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