Press Release

DBRS Morningstar Downgrades Rating on Maggese S.r.l. to CCC (high) (sf) from BBB (low) (sf); Trend Remains Negative

Nonperforming Loans

November 02, 2021

DBRS Ratings GmbH (DBRS Morningstar) downgraded its rating on the Class A notes issued by Maggese S.r.l. (the Issuer) to CCC (high) (sf) from BBB (low) (sf). The trend remains Negative.

The transaction was funded by 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 on or before its final maturity date of 25 July 2037. DBRS Morningstar does not rate the Class B or Class J notes.

At issuance, the Notes were backed by a EUR 697 million portfolio by gross book value consisting of a mixed pool of Italian nonperforming residential, commercial, and unsecured loans originated by Cassa di Risparmio di Asti S.p.A. and Cassa di Risparmio di Biella e Vercelli - Biverbanca S.p.A.

The receivables are serviced by Prelios Credit Servicing S.p.A. (the Servicer). A backup servicer facilitator, Securitisation Services S.p.A., was appointed and will act as a servicer if the appointment of Prelios Credit Servicing S.p.A. is terminated.

RATING RATIONALE
The rating downgrade follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: assessment of portfolio recoveries as of 30 June 2021, focusing on: (1) a comparison between actual collections and the Servicer’s initial business plan forecast; (2) the collection performance observed over the past 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 initial expectations.
-- Portfolio characteristics: loan pool composition as of September 2021 and the 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).
-- Performance ratios and underperformance events: as per the most recent July 2021 payment report, the cumulative collection ratio is 60% and the net present value cumulative profitability ratio is 99%. Since the January 2021 interest payment date, the 90% limit for the cumulative collection ratio has been breached, so that Class B interest payments are subordinated to the repayment of the Class A principal.
-- Liquidity support: the transaction benefits from an amortising cash reserve providing liquidity to the structure and covering against potential interest shortfall on the Class A notes. The cash reserve target amount is equal to 4% of the Class A notes principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest payment report from July 2021, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 115.1 million, EUR 24.4 million, and EUR 11.4 million, respectively. The balance of the Class A notes has amortised by approximately 32.6% since issuance. The current aggregated transaction balance is EUR 150.9 million.

As of June 2021, the transaction was performing significantly below the Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 72.7 million whereas the Servicer’s business plan estimated cumulative gross collections of EUR 125.0 million for the same period. Therefore, as of June 2021, the transaction was underperforming by EUR 52.3 million (-41.8%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 103.8 million at the BBB (low) (sf) stressed scenario. Therefore, as of June 2021, the transaction was performing considerably below DBRS Morningstar’s stressed expectations at issuance.

Pursuant to the requirements set out in the receivable servicing agreement, in April 2021, the Servicer delivered an updated portfolio business plan.

The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 64.8 million as of 31 December 2020, results in a total of EUR 212.5 million, which is 13.3% lower than the total gross disposition proceeds of EUR 245.1 million estimated in the initial business plan, and expected to be realised over a longer period of time. The servicer has been underperforming its updated business plan in the past quarters. The updated DBRS Morningstar CCC (high) (sf) rating stress assumes a haircut of 2.1% to the Servicer’s updated business plan, considering total expected collections.

Without including actual collections, the Servicer’s expected future collections from July 2021 now account for EUR 134.5 million over a considerably longer time period than initially expected. Considering senior costs and interest due on the Notes, the full repayment of Class A principal is increasingly unlikely.

The final maturity date of the transaction is in July 2037.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The coronavirus and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that negative effects may continue in the coming months for many nonperforming loan (NPL) transactions. In particular, the deterioration of macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collaterals. The rating is based on additional analysis 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 residential property prices, but gave partial credit to house price increases from 2023 onward in non-investment-grade scenarios.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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/384146 and https://www.dbrsmorningstar.com/research/360393.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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.

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.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for this rating include the Issuer, Prelios Credit Servicing S.p.A. and KPMG Fides Servizi di Amministrazione S.p.A., which comprise, in addition to the information received at issuance, the business plan delivered in April 2021 as of December 2020; the investor report as of July 2021; the semiannual servicer report as of June 2021; and the quarterly servicer report and loan-by-loan report as of September 2021.

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.

The last rating action on this transaction took place on 2 November 2020, when DBRS Morningstar confirmed the rating on the Class A notes at BBB (low) (sf) with a Negative trend and removed the rating from Under Review with Negative Implications.

The lead analyst responsibilities for this transaction have been transferred to Clarice Baiocchi.

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 207.9 million at the CCC (high) (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 below CCC (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 below CCC (sf).

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 Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Clarice Baiocchi, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 26 July 2018

DBRS Ratings GmbH
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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.

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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