DBRS Morningstar Takes Rating Actions on Popolare Bari NPLs 2016 S.r.l.
Nonperforming LoansDBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on the notes issued by Popolare Bari NPLs 2016 S.r.l. (the Issuer):
-- Class A Asset Backed Floating Rate Notes due 2036 (the Class A notes) downgraded to CC (sf) from CCC (sf)
-- Class B Asset Backed Floating Rate Notes due 2036 (the Class B notes) confirmed at C (sf)
DBRS Morningstar also removed the Negative trend from the Class A notes’ credit rating and the Stable trend from the Class B notes’ credit rating. The credit ratings on the Class A and Class B notes do not currently have trends.
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 on or before the final maturity date in December 2036. The credit rating on the Class B notes addresses the ultimate payment of interest and principal on or before the legal final maturity date. DBRS Morningstar does not rate the Class J notes.
Given the characteristics of the Class B notes, as defined in the transaction documents, DBRS Morningstar notes that a default would most likely only be recognised at the maturity or an early termination of the transaction.
At issuance, the Notes were backed by a EUR 480.0 million portfolio by gross book value consisting of a mixed pool of Italian nonperforming residential, commercial, and unsecured loans originated by Banca Popolare di Bari S.c.p.A., Banca Tercas, and Banca Caripe S.p.A. All entities were subsequently merged into Banca Popolare di Bari S.c.p.A. (the Originator).
The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios or the Servicer) while Banca Finanziaria Internazionale S.p.A. (formerly Securitisation Services S.p.A.) operates as backup servicer.
CREDIT RATING RATIONALE
The credit 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 May 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 November 2022, received in March 2023, and the comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of May 2023 and the evolution of its core features since issuance.
-- Transaction liquidating structure: The payment 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 June 2023 payment report, the cumulative collection ratio was 55.9% and the net present value cumulative profitability ratio was 94.8%. Since the June 2020 interest payment date, the cumulative collection ratio has breached the 90% limit, so that interest payments on the Class B notes are subordinated to the repayment of principal on the Class A notes.
-- 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 costs. The cash reserve target amount is equal to 3% of the Class A and Class B notes’ principal outstanding and is currently fully funded. There is an additional cash reserve funded at EUR 2.5 million from the first interest payment date through collections. It equalled EUR 1.85 million as of the June 2023 interest payment date.
-- Interest rate risk: The transaction is exposed to high interest rate risk in a rising interest rate environment because of the material underhedging of the Class A and Class B notes, which is a result of the underperformance in terms of collections.
TRANSACTION AND PERFORMANCE
According to the latest investor report from June 2023, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 67.9 million, EUR 14.0 million, and EUR 10.0 million, respectively. As of the June 2023 payment date, the balance of the Class A notes has amortised by 46.3% since issuance and the current aggregated transaction balance is EUR 92.0 million.
As of May 2023, the transaction was performing significantly below the Servicer’s initial business plan expectations. The actual cumulative gross collections equalled EUR 89.9 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 160.9 million for the same period. Therefore, as of May 2023, the transaction was underperforming by EUR 71.0 million (-44.1%) compared with the initial business plan expectations.
At issuance, DBRS Morningstar estimated cumulative gross collections of EUR 99.0 million at the BBB (high) (sf) stressed scenario and EUR 128.7 million at the B (high) (sf) stressed scenario for the same period. Therefore, as of May 2023, the transaction was performing below DBRS Morningstar’s initial 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 87.2 million as of November 2022, results in a total of EUR 143.5 million, which is 27.2% lower than the total gross disposition proceeds of EUR 197.2 million estimated in the initial business plan. The Servicer has been underperforming its updated business plan in the past half of the year.
Excluding actual collections, the Servicer’s expected future collections from June 2023 now account for EUR 50.5 million, which is less than the current outstanding balance of the Class A notes. In DBRS Morningstar’s CCC (sf) scenario, the Servicer’s updated forecast was adjusted only in terms of actual collections to the date and timing of future expected collections. Considering senior costs and interest due on the Notes, the full repayment of Class A and Class B principal is increasingly unlikely, but considering the transaction structure, a payment default on the Notes would likely occur only a few years from now.
The final maturity date of the transaction is in December 2036.
DBRS Morningstar’s credit ratings on the Class A and Class B notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.
DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.
DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.
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/416784/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 credit 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/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 credit ratings include the Issuer, Prelios, and Banca Finanziaria Internazionale S.p.A., which comprise, in addition to the information received at issuance, the updated business plan delivered in March 2023 as of November 2022; the investor report as of June 2023; the semiannual servicer report as of May 2023; and a loan-by-loan report as of May 2023.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial credit ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings 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.
The last credit rating actions on this transaction took place on 1 September 2022, when DBRS Morningstar confirmed its credit rating on the Class A notes at CCC (sf) with a Negative trend, downgraded its credit rating on the Class B notes to C (sf) from CC (sf), and changed the trend on the Class B notes to Stable from Negative.
The lead analyst responsibilities for this transaction have been transferred to Sijia Aulenbacher.
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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the Base Case):
-- Recovery rates used: Cumulative base case recovery amount of approximately EUR 53.6 million at the CCC (sf) rating 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 CC (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 CC (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a confirmation of the Class B notes at C (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a confirmation of the Class B notes at C (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://registers.esma.europa.eu/cerep-publication/. 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 credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Sijia Aulenbacher, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 12 August 2016
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- Rating European Nonperforming Loans Securitisations (5 June 2023), https://www.dbrsmorningstar.com/research/415383/rating-european-nonperforming-loans-securitisations.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- European RMBS Insight Methodology (27 March 2023), https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology.
-- European RMBS Insight: Italian Addendum (29 September 2022), https://www.dbrsmorningstar.com/research/403237/european-rmbs-insight-italian-addendum.
-- European CMBS Rating and Surveillance Methodology (14 December 2022), https://www.dbrsmorningstar.com/research/407379/european-cmbs-rating-and-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Derivative Criteria for European Structured Finance Transactions (16 June 2023), https://www.dbrsmorningstar.com/research/415976/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
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.