Press Release

DBRS Morningstar Takes Rating Actions on Ibla S.r.l.

Nonperforming Loans

June 08, 2023

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Ibla S.r.l. (the Issuer):

-- Class A notes upgraded to BBB (high) (sf) from BBB (low) (sf), trend changed to Stable from Positive
-- Class B notes upgraded to CCC (high) (sf) from CCC (sf), trend changed to Stable from Positive

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 on or before the legal final maturity date in April 2037. The rating on the Class B notes addresses the ultimate payment of principal and interest. DBRS Morningstar does not rate the Class J notes.

At issuance, the notes were backed by a EUR 348.6 million by gross book value portfolio consisting of secured and unsecured Italian nonperforming loans originated by Banca Agricola Popolare di Ragusa S.C.p.A.

doValue S.p.A. (doValue or the servicer) services the receivables while Banca Finaziaria Internazionale S.p.A. (Banca Finint) operates as the backup servicer.

RATING RATIONALE
The rating actions follow a review of the transaction and are based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 31 March 2023, 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 servicer’s updated business plan as of December 2022, received in April 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).
-- Performance ratios and underperformance events: As per the April 2023 investor report, the most recent available, the cumulative collection ratio was 66.0% and the net present value cumulative profitability ratio was 135.7%. Since the April 2021 interest payment date, the cumulative collection ratio has breached the 85% limit, so the Class B interest payments are now subordinated to the repayment of the Class A principal.
-- Liquidity support: The transaction benefits from an amortising cash reserve, which provides liquidity to the structure by covering potential interest shortfall on the Class A notes and senior fees. The cash reserve target amount is equal to 7.5% of the Class A notes’ principal outstanding balance and is currently 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 April 2023, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 33.4 million, EUR 9.0 million, and EUR 3.5 million, respectively. As of the April 2023 payment date, the balance of the Class A notes had amortised by approximately 60.7% since issuance and the then aggregated transaction balance was EUR 45.9 million.

As of March 2023, the transaction was performing below the servicers’ business plan expectations. The actual cumulative gross collections equaled EUR 76.5 million whereas the servicers’ initial business plan estimated cumulative gross collections of EUR 113.5 million for the same period. Therefore, as of March 2023, the transaction was underperforming by EUR 37.0 million (32.6%) compared with the initial business plan expectations. At issuance, DBRS Morningstar estimated cumulative gross collections of EUR 37.6 million at the BBB (low) (sf) stressed scenario for the same period. Therefore, as of March 2023, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in April 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 73.0 million as of December 2022, results in a total of EUR 146.1 million, which is 12.4% lower than the total gross disposition proceeds of EUR 166.8 million estimated in the initial business plan. Excluding actual collections, the expected future collections from April 2023 now amount to EUR 69.8 million (against EUR 53.3 million in the initial business plan). The updated DBRS Morningstar rating stress assumes a haircut of 11.5% at the BBB (high) (sf) and 4.7% at the CCC (high) (sf) stress scenarios to the servicer’ updated business plan, considering the future expected collections.

The upgrades address the transaction’s (i) improved credit enhancement, (ii) faster amortisation of the rated notes as compared to the cap notional schedule that mitigates the transaction´s exposure to the rising interest rate environment, and (iii) the profitability observed on closed accounts. The notes may pass higher rating stress scenarios; however, DBRS Morningstar believes that higher ratings would not be commensurate with the risk associated with the transaction considering (i) the cumulative collection underperformance observed since issuance as compared to the executed business plan, (ii) the consistent downward revision of the servicer´s expectations, (iii) the increased percentage of unsecured borrowers and reduced exposure towards residential assets according to the updated loan by loan information, the latter of which points towards some data-inconsistency in DBRS Morningstar’s opinion, and (iv) the exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

The final maturity date of the transaction is in April 2037.

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, doValue, and Banca Finint, which comprise, in addition to the information received at issuance, the investor report as of April 2023 and the semiannual Servicer report as of March 2023; the updated loan data tape as of March 2023; and the updated business plan received in April 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 14 June 2022, when DBRS Morningstar confirmed its BBB (low) (sf) and CCC (sf) ratings on the Class A and Class B notes, respectively; removed the Under Review with Positive Implications status of the ratings; and assigned Positive trends.

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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the base case):

-- Recovery rates used: Cumulative base case recovery amount of approximately EUR 61.6 million and EUR 66.4 million at the BBB (high) (sf) and CCC (high) (sf) stress levels, respectively, 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 confirmation of the Class A Notes at BBB (high) (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 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 B notes to below CCC (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.

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: 6 September 2018

DBRS Ratings GmbH
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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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