Press Release

DBRS Morningstar Confirms Rating on Siena NPL 2018 S.r.l. with Stable Trend

Nonperforming Loans

September 30, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed its rating on the Class A notes issued by Siena NPL 2018 S.r.l. (the Issuer) at BB (high) (sf) with a Stable trend.

The transaction represents the issuance of Class A, Class B, and Class J notes as well as a Class X detachable coupon (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 its final maturity date. DBRS Morningstar does not rate the Class B notes, the Class J notes, or the Class X detachable coupon.

At issuance, the notes were backed by a EUR 24.1 billion portfolio by gross book value consisting of a mixed pool of Italian nonperforming residential, commercial, and unsecured loans originated by Banca Monte dei Paschi di Siena S.p.A., MPS Capital Services Banca per le Imprese S.p.A., and Monte dei Paschi di Siena Leasing.

The receivables are serviced by Gardant S.p.A. (Gardant; formerly Credito Fondiario S.p.A.), doValue S.p.A. (doValue; formerly Italfondiario S.p.A.), Juliet S.p.A. (Juliet), and Prelios S.p.A. (Prelios; collectively, the special servicers). Gardant also operates as the master servicer in the transaction.

RATING RATIONALE
The rating confirmation follow an annual review of the transaction and is 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 special servicers’ business plan forecast from August 2020 (the business plan); (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 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).
-- Performance ratios and underperformance events: as per the most recent August 2022 payment report, all servicers have breached their special servicer subordination fee event and 10% of their fees above the base fee are subordinated in the priority of payments whereas the mezzanine notes (interest) trigger has not occurred.
-- Liquidity support: the transaction benefits from an amortising cash reserve providing liquidity to the structure and covering potential interest shortfall on the Class A notes. The cash reserve target amount is equal to 3.5% of the Class A notes’ principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest payment report from August 2022, the outstanding principal amounts of the Class A, Class B, and Class J notes were equal to EUR 1,334.3 million, EUR 883.3 million, and EUR 565.0 million, respectively. The balance of the Class A notes has amortised by 54.3% since issuance. The current aggregated transaction balance is EUR 2,782.6 million.

As of June 2022, the transaction was performing below the special servicers’ business plan expectations. The actual cumulative gross collections from the transfer date (20 December 2017) equalled EUR 2,617.3 million whereas the servicers’ business plan estimated cumulative gross collections of EUR 3,506.1 million for the same period. Therefore, as of June 2022, the transaction was underperforming by EUR 888.8 million (-25.3%) compared with the business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 1,988.6 million at the BBB (sf) stressed scenario. Therefore, as of June 2022, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

The business plan assumes total cumulative gross collections from the transfer date of EUR 6,247.8 million. Excluding actual collections, the special servicers’ expected future collections from July 2022 are now EUR 2,741.7 million. The updated DBRS Morningstar BB (high) (sf) rating stress assumes a haircut of 5.1% to the special servicers’ business plan, considering future expected collections (16.4% including actual collections from the transfer date).

The final maturity date of the transaction is in January 2047.

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 19 September 2022. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2022 Update | DBRS Morningstar 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/402357 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 (17 May 2022).

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 this rating include the Issuer, Gardant, doValue, Juliet, Prelios, and Banca Finanziaria Internazionale S.p.A. which comprise, in addition to the information received at issuance, the business plan; the investor report as of August 2022; and the quarterly and monthly servicer reports as of June 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 1 October 2021, when DBRS Morningstar confirmed the rating on the Class A notes at BB (high) (sf) and changed the trend to Stable from Negative.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

Sensitivity Analysis: 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 rating (the base case):

-- Recovery Rates Used: Cumulative base case recovery amount of approximately EUR 2,603.1 million at the BB (high) (sf) stress level, a 5% and 10% decrease in the base case recovery rate.
-- 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 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).

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.

This rating is 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: 10 May 2018

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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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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