Press Release

DBRS Morningstar Takes Rating Actions on POP NPLS 2019 S.r.l.

Nonperforming Loans

May 23, 2023

DBRS Ratings GmbH (DBRS Morningstar) took rating actions on the notes issued by POP NPLS 2019 S.r.l. (the Issuer) as follows:

-- Class A Notes confirmed at BBB (sf), trend changed to Stable from Negative
-- Class B Notes downgraded to CCC (low) (sf) from CCC (sf) with a 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 legal final maturity date and the rating on the Class B Notes addresses the ultimate payment of principal and interest. DBRS Morningstar does not rate the Class J Notes.

As of the 1 January 2019 cut-off date, the Notes were backed by a EUR 826.7 million portfolio consisting of secured and unsecured Italian nonperforming loans sold to the Issuer by 12 Italian banks.

Prelios Credit Solutions S.p.A. (Prelios) and Fire S.p.A. (Fire; together with Prelios, the Servicers) service the receivables. Prelios Credit Servicing S.p.A. acts as the master servicer and Banca Finanziaria Internazionale S.p.A. (Banca Finint; formerly Securitisation Services S.p.A.) operates as the backup servicer.

RATING RATIONALE
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 31 December 2022, focusing on: (1) a comparison between actual collections and the Servicer’s initial business plan forecast; (2) the collection performance observed over recent months; and (3) a comparison between the current performance and DBRS Morningstar’s expectations.
-- Business plan: The Servicers’ updated business plan as of December 2022, received in March 2023, and the comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of March 2023 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 net collection ratio or the net present value cumulative profitability ratio is lower than 90%. These triggers were not breached on the February 2023 interest payment date, with the actual figures at 126.6% and 118.0%, respectively, according to the Servicers.
-- 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 4.5% of the Class A Notes’ principal outstanding balance and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from February 2023, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 101.2 million, EUR 25.0 million, and EUR 5.0 million, respectively. As of the February 2023 payment date, the balance of the Class A Notes had amortised by approximately 41.5% since issuance and the current aggregated transaction balance was EUR 131.2 million.

As of December 2022, the transaction was performing above the Servicers’ business plan expectations. The actual cumulative gross collections equalled EUR 103.6 million whereas the Servicers’ initial business plan estimated cumulative gross collections of EUR 75.4 million for the same period. Therefore, as of December 2022, the transaction was overperforming by EUR 28.2 million (37.3%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections of EUR 53.9 million at the BBB (sf) stressed scenario for the same period and EUR 66.6 million at the CCC (sf) stressed scenario. Therefore, as of December 2022, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in March 2023, the Servicers provided DBRS Morningstar with a revised business plan combined with the actual cumulative collections as of December 2022. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 103.6 million as of December 2022, results in a total of EUR 268.0 million, which is 4.7% lower than the total gross disposition proceeds of EUR 281.2 million estimated in the initial business plan. Excluding actual collections as of December 2022, the Servicers’ expected future collections from January 2023 account for EUR 164.4 million, which is 20.1% lower than the total expected future proceeds of EUR 205.8 million estimated in the initial business plan for the same period. Hence, the servicer’ expectation for collections on the remaining portfolio was revised considerably downwards. The updated DBRS Morningstar BBB (sf) rating stress assumes a haircut of 18.1% to the Servicers’ updated business plan, considering future expected collections from January 2023. In DBRS Morningstar’s CCC (sf) scenario, DBRS Morningstar only adjusted the updated Servicers’ forecast in terms of actual collections to date and timing of future expected collections.

The final maturity date of the transaction is in February 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 rating is: “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

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, Fire, and Banca Finint, which comprise, in addition to the information received at issuance, the investor report as of February 2023; the semiannual Servicers’ reports as of December 2022; the quarterly Servicers’ report as of March 2023; the monthly Servicers’ reports as of April 2023; the quarterly loan-by-loan reports as of December 2022 and March 2023; and the updated business plan received in March 2023.

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 31 May 2022, when DBRS Morningstar confirmed its BBB (sf) and CCC (sf) ratings on the Class A and Class B Notes, respectively, with Negative trends.

The lead analyst responsibilities for this transaction have been transferred to Alberto Cruces de la Rosa.

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):

-- 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 (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 (sf)
-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a downgrade of the Class B Notes to below CCC (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 B Notes to below CCC (low) (sf)

Generally, 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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Alberto Cruces de la Rosa, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 December 2019

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

DBRS Ratings GmbH
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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.

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