Press Release

DBRS Morningstar Confirms Ratings on Fino 1 Securitisation S.r.l., Changes Trends to Stable from Negative

Nonperforming Loans

November 12, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on the Class A Notes, Class B Notes, and Class C Notes (together with the unrated Class D Notes, the Notes) issued by Fino 1 Securitisation S.r.l. (the Issuer) at BBB (high) (sf), BB (high) (sf), and BB (sf), respectively, and changed the trends to Stable from Negative.

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 and Class C Notes addresses the ultimate payment of both interest and principal. DBRS Morningstar does not rate the Class D Notes.

At issuance, the Notes were backed by a EUR 5.37 billion by gross book value portfolio consisting of secured and unsecured Italian nonperforming loans originated by UniCredit S.p.A. (the Originator).

The receivables are serviced by doValue S.p.A. (the Servicer), while no entity has been appointed to operate 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.
-- 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 C Notes will amortise following the repayment of the Class B Notes).
-- Notes performance events: as per the most recent October 2021 payment report the Class B and Class C performance events have not occurred. A performance event occurs if the cumulative net collections (as a percentage of the gross book value of the portfolio at issuance) are lower than the product of (1) the amount included in the business plan for notes performance events and (2) 70% for Class B Notes, 75% for Class C Notes.
-- 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 5% of the principal outstanding on the Class A Notes and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest payments report from October 2021, the outstanding principal amounts of the Class A Notes, Class B Notes, Class C Notes, and Class D Notes were equal to EUR 141.4 million, EUR 29.6 million, EUR 40.0 million, and EUR 50.3 million, respectively. The balance of the Class A Notes has amortised by 78.2% since issuance. The current aggregated transaction balance is EUR 261.3 million.

As of September 2021, the transaction was performing below the Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 820.8 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 895.4 million for the same period. Therefore, as of September 2021, the transaction was underperforming by EUR 74.6 million (-8.3%) compared with the business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 422.7 million in the BBB (high) (sf) stressed scenario, EUR 457.0 million in the BB (high) (sf) stressed scenario, and EUR 459.7 million in the BB (sf) stressed scenario. Therefore, as of September 2021, the transaction was performing above DBRS Morningstar’s stressed expectations.

In August 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 716.8 million as of 31 December 2020, results in a total of EUR 1,566.5 million, which is in line with the total GDPs of EUR 1,567.4 million estimated in the initial business plan. The updated DBRS Morningstar rating stress assumes a haircut of 49.9% at BBB (high) (sf), 45,7% at BB (high) (sf), and 44,7% at BB (sf) to the Servicer’s updated business plan, considering future expected collections from October 2021.

Considering past performance only, the rated bonds would pass higher rating stresses in the cash flow analysis. However, according to the updated business plan delivered in August 2021, the Servicer’s expectations on future gross collections have been reduced from the last business plan review. Furthermore, the gross cumulative collection ratio has been below 100% since issuance.

In light of the above DBRS Morningstar does not deem the performance trend to be sustainable yet and confirmed the current ratings assigned to the Class A Notes, Class B Notes, and Class C Notes. However, considering the improved credit enhancement of the transaction, the rating trend assigned to the Class A Notes, Class B Notes, and Class C Notes was changed to Stable from Negative.

The final maturity date of the transaction is in October 2045.

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 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 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 BNP Paribas Securities Services, Milan Branch, which comprise, in addition to the information received at issuance, the business plan delivered in August 2021 as of December 2020; the payment report as of October 2021; the quarterly servicer report as of September 2021; and the loan level data as of December 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 12 November 2020, when DBRS Morningstar confirmed the ratings on the Class A Notes, Class B Notes, and Class C Notes at BBB (high) (sf), BB (high) (sf), and BB (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 confirmation of the Class A Notes to BBB (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 BBB (low) (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 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 B Notes to BB (low) (sf)
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class C Notes at B (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 C Notes to CCC (high) (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, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 November 2017

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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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