Press Release

DBRS Morningstar Changes Trends on Ibla S.r.l. to Stable from Negative, Confirms Ratings

Nonperforming Loans

November 04, 2021

DBRS Ratings GmbH (DBRS Morningstar) changed the trends on the Class A and Class B notes issued by Ibla S.r.l. (the Issuer) to Stable from Negative and confirmed the ratings at BBB (low) (sf) and CCC (sf), respectively.

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 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.

At issuance, the Notes were backed by a EUR 348.6 million by gross book value portfolio consisting of secured and unsecured Italian nonperforming loans originated by Banca Agricola Popolare di Ragusa S.C.p.A. (the Originator).

The receivables are serviced by doValue S.p.A. (the Servicer) while Securitisation Services S.p.A. operates as backup servicer.

RATING RATIONALE
The confirmations follow a review of the transaction and are based on the following analytical considerations:
-- Transaction performance: assessment of portfolio recoveries as of 30 September 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 expectations.
-- Portfolio characteristics: loan pool composition as of September 2021 and the evolution of its core features since issuance.
-- The 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 October 2021 payment report, the cumulative collection ratio was 78% and the net present value cumulative profitability ratio was 138%. Since the April 2021 interest payment date, the cumulative collection ratio has breached the 85% limit, so that Class B interest payments are subordinated to the repayment of the Class A principal.
-- Liquidity: 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.

TRANSACTION AND PERFORMANCE
According to the latest payment report from October 2021, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 51.1 million, EUR 9.0 million, and EUR 3.5 million, respectively. The balance of the Class A notes has amortised by approximately 39.9% since issuance. The current aggregated transaction balance is EUR 63.6 million.

As of September 2021, the transaction was performing below the Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 51.4 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 63.6 million for the same period. Therefore, as of September 2021, the transaction was underperforming by EUR 12.2 million (-19.2%) compared with the business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 23.9 million at the BBB (low) (sf) stressed scenario. Therefore, as of September 2021, the transaction was performing above DBRS Morningstar’s stressed expectations.

In April 2021, the Servicer delivered an updated portfolio business plan as of December 2020. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 38.9 million as of 31 December 2020, results in a total of EUR 150.7 million, which is 9.7% lower than the total gross collections of EUR 166.8 million estimated in the initial business plan. The updated DBRS Morningstar BBB (low) (sf) rating stress assumes a haircut of 21.7% to the Servicer’s updated business plan, considering future expected collections from October 2021. In DBRS Morningstar’s CCC (sf) scenario, the Servicer’s updated forecast was only adjusted in terms of actual collections to date and timing of future expected collections.

Considering the high profitability ratio registered since issuance and the increased credit enhancement, the rated bonds would now pass higher rating stresses in the cash flow analysis. Nevertheless, according to the updated business plan delivered in April 2021, the Servicer’s expectations on future gross collections have been reduced and aggregate gross collections have underperformed original business plan expectations since issuance.
In light of the above DBRS Morningstar does not think this performance trend is yet sustainable in the medium to long term and confirmed the current ratings assigned to the Class A and Class B notes. However, considering the current profitability level of the transaction, the rating trend assigned to the Class A and Class B notes has been changed to Stable from Negative.

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

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases 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 ratings are 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 ratings 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: https://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. The 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 these ratings include the Issuer, doValue S.p.A. and Banca Finanziaria Internazionale S.p.A., which comprise, in addition to the information received at issuance, the business plan delivered in April as of December 2020; the payment report as of October 2021; the semiannual servicer reports as of September 2021; and the updated data tape 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 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 4 November 2020, when DBRS Morningstar removed the ratings on the Class A and Class B notes from Under Review with Negative Implications and confirmed the ratings at BBB (low) (sf) and CCC (sf), respectively, with Negative trends.

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 ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to confirm the ratings (the base case):

-- 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 B (high) (sf)
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a confirmation of the Class B notes at 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 B notes to below CCC (sf)

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. 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.

These ratings are 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: 6 September 2018

DBRS Ratings GmbH
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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: 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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