Press Release

DBRS Morningstar Confirms Credit Rating of Organa SPV S.r.l. at BBB (sf), Changes Trend to Positive from Stable

Nonperforming Loans

July 03, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its BBB (sf) credit rating on the Class A Notes issued by Organa SPV S.r.l. (the Issuer). DBRS Morningstar changed the trend on the credit rating to Positive from Stable.

The transaction represents the issuance of Class A, Class B, and Class J Notes (collectively, the Notes). The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal. DBRS Morningstar does not rate the Class B and Class J Notes.

As of the 31 December 2021 cut-off date, the Class A Notes were backed by a EUR 8.5 billion portfolio by gross book value (GBV) of Italian unsecured and secured nonperforming loans originated by Intesa Sanpaolo SpA (the Seller or the Originator). Intrum Italy S.p.A. (Intrum or the special servicer) services the receivables while Banca Finanziaria Internazionale S.p.A. acts as the Master Servicer for the transaction. Intrum will also act as backup servicer facilitator in case of the Master Servicer’s termination.

At the cut-off date, the securitised portfolio included unsecured loans representing approximately 69.3% of the GBV and secured loans representing the remaining 30.7% of the GBV, approximately 93.6% by GBV of which benefits from a first-ranking lien mortgage. At the cut-off date, the portfolio mainly consisted of corporate borrowers (82.5% by GBV) and the properties securing the loans in the portfolio were mainly residential (54.4% by updated real estate value).

CREDIT RATING RATIONALE
The rating confirmation follows a review of the transaction and is 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.
-- Updated business plan: The Servicer’s updated business plan as of December 2022, received in May 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 April 2023 interest payment date, these triggers had not been breached with actual figures at 175.1% and 126.9%, respectively, according to the special 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% 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 665.6 million, EUR 130.0 million, and EUR 15.0 million, respectively. As of the April 2023 payment date, the balance of the Class A Notes had amortised by 31.4% since issuance and the current aggregated transaction balance was EUR 810.7 million.

As of March 2023, the transaction was performing above the Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 392.2 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 229.8 million for the same period. Therefore, as of March 2022, the transaction was overperforming significantly by EUR 162.4 million (70.7%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 135.2 million at the BBB (sf) stressed scenario. 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 May 2023, the Servicer delivered an updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 339.0 million as of December 2022, results in a total of EUR 1,724.7 million, which is virtually unchanged to the total gross disposition proceeds of EUR 1,724.7 million estimated in the initial business plan. Considering the better than expected performance to date in terms of reported profitability, the Servicer likely revised its expectations of future collections downwards. Excluding actual collections, the Servicer’s expected future collections from March 2023 amount to EUR 1,342.9 million. The updated DBRS Morningstar BBB (sf) rating stresses assume a haircut of 23.4% to the Servicer’s updated business plan, considering future expected collections.

Considering the faster than expected collections and the high profitability ratio registered since issuance as well as the increased subordination, the rated notes now pass higher rating stresses in the cash flow analysis. However, considering the early stage of the transaction DBRS Morningstar does not yet deem this performance trend to be sustainable in the medium to long term, and confirmed the current rating assigned to the Class A Notes. Considering the consistent overperformance and the high profitability level of the transaction, a Positive rating trend was assigned to the Class A Notes.

The final maturity date of the transaction is April 2042.

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 credit 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 credit 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.

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.

The sources of data and information used for this credit rating include the Issuer, Intrum, and Banca Finanziaria Internazionale S.p.A., which comprise, in addition to the information received at issuance, the investor reports as of April 2023, the updated business plan as of December 2022, the quarterly servicer report as of March 2023, and quarterly loan-by-loan information 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 credit 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 credit rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

This is the first credit rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Clarice Baiocchi.

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

-- Recovery rates used: Cumulative base case recovery amount of approximately EUR 1,027.9 million at the BBB (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 on the Class A Notes at BBB (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 BB (high) (sf).
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.

This credit 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: 21 April 2022

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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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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