Press Release

DBRS Morningstar Confirms Ratings on BCC NPLs 2019 S.r.l., Maintains Negative Trends

Nonperforming Loans

July 14, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the Class A and Class B Notes issued by BCC NPLs 2019 S.r.l. (the Issuer) at BBB (sf) and CCC (sf), respectively, with Negative trends.

The transaction represents the issuance of Class A, Class B, and Class J Notes (collectively, the Notes) backed by a mixed pool of Italian nonperforming secured and unsecured loans originated by 68 Italian banks (collectively, the Originators). The rating assigned to the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal while the rating assigned to the Class B Notes addresses the ultimate payment of both interest and principal. DBRS Morningstar does not rate the Class J Notes.

The gross book value (GBV) of the loan pool was approximately EUR 1.32 billion as of the 31 December 2018 selection date. The securitised portfolio is composed of secured loans, representing approximately 73.8% of the GBV, with unsecured loans representing the remaining 26.2% of the GBV. Residential and industrial real estate properties represent 44.2% and 16.2% of the pool by first-lien real estate value, respectively.

The receivables are serviced by doValue S.p.A. (doValue or the Special Servicer). doNext S.p.A. acts as the master servicer while Banca Finanziaria Internazionale S.p.A. (formerly Securitisation Services S.p.A.) operates as the 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 31 December 2021, focusing on: (1) a comparison between actual collections and the Special Servicer’s initial business plan forecast; (2) the collection performance observed over recent 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.
-- Updated business plan: The Special Servicer’s updated business plan as of December 2021, which DBRS Morningstar received in June 2022, and the comparison with the initial collection expectations.
-- Portfolio characteristics: Loan pool composition as of March 2022 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). Additionally, interest payments on the Class B Notes become subordinated to principal payments on the Class A Notes if the cumulative collection ratio or the present value cumulative profitability ratio is lower than 90%. These triggers were not breached on the January 2022 interest payment date (IPD), with the actual figures at 108.3% and 105.4%, respectively, according to the Special Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure, covering potential interest shortfall on the Class A Notes and senior fees. The cash reserve target amount is equal to 3% of the Class A Notes’ principal outstanding balance and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2022, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 299.4 million, EUR 53.0 million, and EUR 13.2 million, respectively. As of the January 2022 IPD, the balance of the Class A Notes had amortised by approximately 15.7% since issuance and the current aggregated transaction balance was EUR 365.6 million.

As of December 2021, the transaction was performing above the Special Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 83.1 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 73.7 million for the same period. Therefore, as of December 2021, the transaction was overperforming by EUR 9.4 million (12.7%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 48.0 million at the BBB (sf) stressed scenario and EUR 71.5 million at the CCC (sf) stressed scenario. Therefore, as of December 2021, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in June 2022, the Servicer provided DBRS Morningstar with a revised portfolio business plan combined with the actual cumulative collections as of December 2021. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 83.1 million as of December 2021, results in a total of EUR 595.5 million, which is 7.9% lower than the total gross disposition proceeds of EUR 646.8 million estimated in the initial business plan. Excluding actual collections, the Servicer’s expected future collections from January 2022 account for EUR 512.4 million. The updated DBRS Morningstar BBB (sf) rating stress assumes a haircut of 22.1% to the Servicer’s updated business plan, considering future expected collections from January 2022. In DBRS Morningstar’s CCC (sf) scenario, the Servicer’s updated forecast was only adjusted in terms of the actual collections to date and the timing of future expected collections.

The final maturity date of the transaction is in January 2044.

The Coronavirus Disease (COVID-19) and the resulting isolation measures had caused an economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. For this transaction, DBRS Morningstar incorporated its expectation of a moderate medium-term decline in commercial real estate prices for certain property types.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 29 June 2022. 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/399022/baseline-macroeconomic-scenarios-for-rated-sovereigns-june-2022-update 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings..

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (19 May 2022).

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. 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 and Banca Finanziaria Internazionale S.p.A., which comprise, in addition to the information received at issuance, the investor report as of January 2022; the semiannual Servicer report as of December 2021; the quarterly Servicer report as of March 2022; the monthly Servicer report as of May 2022; and the updated business plan received in June 2022.

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 26 May 2021, when DBRS Morningstar confirmed its ratings on the Class A and B Notes 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 rating, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to confirm the rating (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 (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 B (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 to 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)

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: 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, Head of European Structured Finance
Initial Rating Date: 19 December 2019

DBRS Ratings GmbH
Neue Mainzer Straße 75
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.

Download This Press Release