DBRS Confirms Ratings of Siena NPL 2018 S.r.l.

DBRS Ratings Limited (DBRS) confirmed its BBB (sf) rating of the Class A notes issued by Siena NPL 2018 S.r.l. (the Issuer).

The notes were backed by EUR 24.1 billion by portfolio gross book value (GBV) consisting of unsecured and secured non-performing loans originated by Banca Monte dei Paschi di Siena S.p.A., MPS Capital Services Banca per le Imprese S.p.A. and Monte dei Paschi di Siena Leasing & Factoring (the Originators). Most of the loans in the portfolio defaulted between 2000 and 2017 and are in various stages of resolution. The receivables are serviced by Credito Fondiario S.p.A. (Credito Fondiario), Italfondiario S.p.A. (Italfondiario), Juliet S.p.A. (a joint venture between Cerved S.p.A. and the servicing platform of Banca MPS) and Prelios S.p.A. (Prelios), (the Special Servicers). Credito Fondiario S.p.A. also operates as Master Servicer in the transaction. As of March 2019, the total GBV totalled EUR 23.1 billion.

Approximately 57.8% (by GBV) of the pool was secured and 51.0% (by GBV) of the secured loans benefitted from a first-ranking lien. The secured loans included in the portfolio were backed by properties distributed across Italy, with some concentrations in the regions of Tuscany, Veneto, Lombardy and Campania. In its analysis, DBRS assumed that all loans were worked out through an auction process, which generally has the longest resolution timeline. As of March 2019, 55.7% by GBV of the portfolio is secured and 51.06% by GBV benefits from a first-ranking lien.

According to the latest information provided by the Master Servicer, the portfolio is still homogeneously distributed across Italy with some concentrations in the regions of Tuscany (17.8% by original market value or OMV), Veneto (10.6% by OMV), Lombardy (10.5% by OMV) and Campania (10.1% by OMV). The main Asset Type of portfolio’s properties remains Residential (50.49% by OMV).

Interest on the Class B Notes, which represent mezzanine debt, may be repaid prior to the principal of the Class A Notes unless certain performance related triggers are breached. As per the latest Payment Report available on March 2019, the Special Servicer Fee Subordination Event has occurred for the some of the Servicers.

The transaction envisages the presence of an external Reoco financed by the Italian Recovery Fund (IRF) in the form of a minibond issued by the Reoco and subscribed for by IRF.

The ratings are based on DBRS’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the Special Servicers, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement and the transaction’s legal and structural features. DBRS’s BBB rating stress assumes a haircut of approximately 33.3% to the Special Servicers’ business plan for the portfolio.

DBRS analysed the transaction structure using Intex Deal Maker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Non-Performing Loan Securitisations”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

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 Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include the Originators and the Special Servicers.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

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

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

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a downgrade of the Class A notes to BB (High) (sf).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 15%, ceteris paribus, would lead to a downgrade of the Class A notes to BB (sf).
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Mattia Pauciullo, Senior Financial Analyst
Rating Committee Chair: Quincy Tang, Managing Director
Rating Date: 9 May 2019

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating European Non-Performing Loans Securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- European CMBS Rating and Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.