Press Release

DBRS Morningstar Downgrades Rating on Belvedere SPV S.r.l.; Trend Remains Negative

Nonperforming Loans

September 08, 2022

DBRS Ratings GmbH (DBRS Morningstar) downgraded its rating on the Class A notes issued by Belvedere SPV S.r.l. (the Issuer) to CCC (high) (sf) from BB (low) (sf) and maintained the Negative trend.

The transaction represents 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 the final maturity date in December 2038. DBRS Morningstar does not rate the Class B and Class J notes.

At issuance, the Notes were backed by a EUR 2.5 billion portfolio by gross book value consisting of a mixed pool of Italian nonperforming loans sold by Gemini SPV S.r.l., Sirius SPV S.r.l., Antares SPV S.r.l., SPV Project 1702 S.r.l., and Adige SPV S.r.l. to the Issuer. Bayview Global Opportunities Fund S.C.S. SICAV-RAIF operates as sponsor and indemnity provider in the transaction.

The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios) and Bayview Italia S.r.l. (Bayview), which act as the Special Servicers. Prelios also operates as the master servicer in the transaction. A backup servicer, Banca Finanziaria Internazionale S.p.A. (former Securitisation Services S.p.A.), was appointed and will act as the servicer in case the Special Servicers’ appointments are terminated.

RATING RATIONALE
The downgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Transaction performance: assessment of portfolio recoveries as of 31 May 2022, focusing on: (1) a comparison between actual collections and the Special Servicers’ 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 May 2022 and the evolution of its core features since issuance.
-- Transaction liquidating structure: the payment 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: first-level and second-level underperformance events may occur if the cumulative collection ratio (CCR) and the present value cumulative profitability ratio (PVCPR) are both lower than 90% and 75%, respectively. These events had not occurred on the June 2022 interest payment date, and the actual figures were a CCR of 26.3% and a PVCPR of 123.6% for Prelios and a CCR of 54.2% and a PVPCR of 100.4% for Bayview, according to the latest information from the Special Servicers.
-- Liquidity support: the transaction benefits from an amortising cash reserve providing liquidity to the structure covering against potential interest shortfall on the Class A notes and senior fees. The cash reserve target amount is equal to 4.0% of the Class A notes’ principal outstanding and is currently fully funded. However, DBRS Morningstar notes that, in the absence of a trigger notice, the amortising mechanism for the reserve defined as the Class J Notes Early Amortisation Amount creates a leakage of funds toward the junior notes.

TRANSACTION AND PERFORMANCE
According to the latest investor report from June 2022, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 241.7 million, EUR 70.0 million, and EUR 95.0 million, respectively. The balance of the Class A notes has amortised by approximately 24.5% since issuance. The current aggregated transaction balance is EUR 406.7 million.

As of May 2022, the transaction was performing significantly below the Special Servicers’ initial business plan expectations. The actual cumulative gross collections equalled EUR 146.4 million whereas the Special Servicers’ initial business plan estimated cumulative gross collections of EUR 327.0 million for the same period. Therefore, as of May 2022, the transaction was underperforming by EUR 180.6 million (-55%) compared with the initial business plan. By special servicer, the performance split would be as follows: Prelios is underperforming by EUR 103.7 million (-72%) compared with its initial expectations and Bayview is underperforming by EUR 76.9 million (-42%) compared with its initial expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 195.9 million at the BBB (low) (sf) stressed scenario. Therefore, as of May 2022, the transaction was performing below DBRS Morningstar’s stressed expectations at issuance.

In May 2021, Bayview provided DBRS Morningstar with a revised business plan. In this updated business plan, Bayview assumed lower recoveries compared with initial expectations. The total cumulative gross collections from the updated business plan account for EUR 271.3 million, which is 11.1% lower than the EUR 305.1 million expected in the initial business plan. Prelios provided the required updated business plan to the monitoring agent, but it has not been released yet as the monitoring agent’s approval and the authorisation for release have not been received so far.

The Special Servicers’ total expected collections, considering the latest officially approved business plans (the executed business plan and 2021 updated business with regards to the pool managed by Prelios and Bayview, respectively), are now EUR 499.8 million. Excluding actual collections, the Special Servicers’ expected future collections from June 2022 are now EUR 231.1 million, which is less than the current aggregated outstanding balance of the Class A notes. The updated DBRS Morningstar CCC (high) (sf) rating stress assumes a haircut of 0.4% to the Special Servicers’ latest officially approved business plans, considering future expected collections from June 2022. 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 December 2038.

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/401817/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, Prelios, Bayview, and Banca Finanziaria Internazionale S.p.A., which comprise, in addition to the information received at issuance, the Bayview updated business plan delivered in May 2021 as of December 2020; the draft Prelios updated business plans uploaded in the virtual data room in March 2021 and March 2022 as of December 2020 and December 2021, respectively; the investor report as of June 2022; the semiannual Special Servicers’ reports as of May 2022; and the loan-by-loan reports as of May 2022.

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 21 September 2021, when DBRS Morningstar downgraded its rating on the Class A notes to BB (low) (sf) from BB (sf) with a Negative trend.

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 determine 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 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 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
Initial Rating Date: 21 December 2018

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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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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