Press Release

DBRS Morningstar Upgrades Rating on Aurelia SPV S.r.l., Maintains Stable Trend

Nonperforming Loans

June 01, 2023

DBRS Ratings GmbH (DBRS Morningstar) upgraded its rating on the Class A Notes issued by Aurelia SPV S.r.l. (the Issuer) to BBB (high) (sf) from BBB (sf). The trend on the rating remains Stable.

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 repayment of principal. DBRS Morningstar does not rate the Class B or Class J Notes.

As of the 31 December 2020 cutoff date, the Class A Notes were backed by a EUR 1.51 billion portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming loans originated by Banco BPM S.p.A. (BPM, the Originator, or the Seller). The securitised portfolio was composed of secured loans, representing approximately 50.3% of the GBV, of which approximately 88.3% by GBV benefits from a first-ranking lien mortgage; and unsecured borrowers represented the remaining 49.7% of the GBV.

The receivables are serviced by Gardant Liberty Servicing S.p.A. (the Special Servicer). Master Gardant S.p.A. (Master Gardant) acts as the master servicer while Banca Finaziaria Internazionale S.p.A. (Banca Finint) operates as the backup servicer.

RATING RATIONALE
The upgrade follows a review of the transaction and is 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.
-- Updated business plan: The Servicer’s updated business plan as of December 2022, received in March 2023, and a 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 begin to 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 are lower than 90%. As of the January 2023 interest payment date, these triggers had not been breached with actual figures at 168.08% and 132.21%, respectively, per the Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve and a recovery expenses cash reserve providing liquidity to the structure and covering a 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 the recovery expenses cash reserve target amounts to EUR 150,000, both fully funded.
-- The exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2023, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 232.4 million, EUR 40.0 million, and EUR 12.0 million, respectively. As of the January 2023 payment date, the balance of the Class A Notes had amortised by 32.0% since issuance and the aggregated transaction balance was EUR 284.4 million.

As of December 2022, the transaction was performing above the Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 140.8 million whereas the Servicer’s initial business plan estimated
cumulative gross collections of EUR 88.7 million for the same period. Therefore, as of December 2022, the transaction was overperforming by EUR 52.1 million (58.8%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 48.2 million in the BBB (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 Servicer delivered an updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 140.8 million as of December 2022, results in a total of EUR 574.8 million, which is 5.9% lower than the total gross disposition proceeds of EUR 610.9 million estimated in the initial business plan. The faster than expected collections prompt a shortened weighted-average life and a reduction in the future expected collections (-16.9%). Excluding actual collections, the Servicer’s expected future collections from January 2023 amount to EUR 434.0 million. The updated DBRS Morningstar BBB (high) (sf) rating stresses assume a haircut of 20.3% to the Servicer’s updated business plan, considering future expected collections.

Considering the outperformance registered since issuance and the increased subordination, the Class A Notes now pass higher than BBB (high) (sf) rating stresses in the cash flow analysis. However, considering the high concentration of proceeds expected in the upcoming periods according to the updated business plan, DBRS Morningstar does not yet deem this performance trend to be sustainable in the medium to long term.

The final maturity date of the transaction is July 2047.

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 in 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” (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 this rating include the Issuer, the Servicer, and Master Gardant S.p.A., which comprise, in addition to the information received at issuance, the investor report as of January 2023; the updated business plan received in March 2023; the semiannual Master Servicer report as of December 2022; and the quarterly Master Servicer report as of March 2023.

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 22 June 2022, when DBRS Morningstar confirmed its rating on the Class A Notes at BBB (sf) and changed the trend to Stable from Negative.

The lead analyst responsibilities for this transaction have been transferred to Pablo Iturriaga.

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 373.5 million at the BBB (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 BBB (high) (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a downgrade on the Class A Notes to 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. 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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Pablo Iturriaga, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 26 July 2018

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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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