Press Release

DBRS Morningstar Upgrades Ratings on Fino 1 Securitisation S.r.l. with Stable Trends, Removes Ratings from Under Review with Positive Implications

Nonperforming Loans

September 08, 2022

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the notes issued by Fino 1 Securitisation S.r.l. (the Issuer) as follows:

-- Class A Notes to A (low) (sf) from BBB (high) (sf)
-- Class B Notes to BBB (high) (sf) from BB (high) (sf)
-- Class C Notes to BBB (sf) from BB (sf)

All trends are Stable. DBRS Morningstar also removed the ratings from their Under Review with Positive Implications status, on which they were placed on 15 March 2022.

The transaction represents the issuance of Class A, Class B, Class C and Class D 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 October 2045. The ratings on the Class B and Class C Notes address the ultimate payment of interest and principal on or before the legal final maturity date. 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 (GBV) 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. (doValue or the Servicer). No backup servicer has been appointed.

RATING RATIONALE
The upgrades follow an annual review of the transaction and are based on the following analytical considerations:
-- Transaction performance: Assessment of portfolio recoveries as of 30 June 2022, 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 June 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 C Notes will amortise following the repayment of the Class B Notes).
-- Notes performance events: As per the most recent July 2022 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 GBV 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 the Class B Notes and 75% for the 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 investor report from July 2022, the outstanding principal amounts of the Class A, Class B, Class C, and Class D Notes were EUR 43.9 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 approximately 93.3% since issuance. The current aggregated transaction balance is EUR 163.8 million.

As of June 2022, the transaction was performing below the Servicer’s initial business plan expectations. The actual cumulative gross collections equalled EUR 954.4 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 1,038.4 million for the same period. Therefore, as of June 2022, the transaction was underperforming by EUR 84.0 million (-8%) compared with the initial business plan.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 518.1 million in the BBB (high) (sf) stressed scenario, EUR 559.6 million in the BB (high) (sf) stressed scenario, and EUR 563.0 million in the BB (sf) stressed scenario. Therefore, as of June 2022 the transaction was performing above DBRS Morningstar’s stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in July 2022, the Servicer delivered the fourth updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 914.9 million as of March 2022, results in a total of EUR 1,579.4 million, which is 0.8% higher than the total gross disposition proceeds of EUR 1,567.4 million estimated in the initial business plan. Excluding actual collections, the Servicer’s expected future collections from July 2022 account for EUR 615.1 million. The updated DBRS Morningstar rating stress assumes a haircut of 48.0% at A (low) (sf), 45.8% at BBB (high) (sf), and 44.8% at BBB (sf) to the Servicer’s updated business plan, considering future expected collections from July 2022.

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

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, doValue, and BNP Paribas Securities Services, Milan Branch which comprise, in addition to the information received at issuance, the updated business plan delivered in July 2022 as of March 2022; the investor report as of July 2022; the quarterly servicer report as of June 2022; and the loan-level data as of December 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 15 June 2022, when DBRS Morningstar maintained the Under Review with Positive Implications status on the Class A, Class B, and Class C Notes.

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 confirmation of the Class A Notes at A (low) (sf)
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a confirmation of the Class A Notes at A (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 BBB (high) (sf)
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a confirmation of the Class B Notes at BBB (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 C Notes at BBB (sf)
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a confirmation of the Class C Notes at BBB (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

DBRS Ratings GmbH
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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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