DBRS Morningstar Assigns Ratings to POP NPLs 2020 S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the notes issued by POP NPLs 2020 S.r.l. (the Issuer) as follows:

-- Class A at BBB (sf)
-- Class B at CCC (sf)

The trend on all ratings is Negative.

As of the 31 December 2019 cut-off date, the notes were backed by a EUR 919.9 million portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming loans originated and sold to the Issuer by 15 Italian banks (the Sellers). Fire S.p.A. (Fire) and Credito Fondiario S.p.A. (Credito Fondiario and, jointly, the Special Servicers) service the receivables. Credito Fondiario will also act as the master servicer. Banca Finanziaria Internazionale S.p.A., has been appointed as backup servicer for Credito Fondiario.

The securitised portfolio comprises secured and unsecured loans: 64.3% of the borrowers by GBV are classified as secured senior (at least a first economic lien), 4.1% as secured junior (at least a second economic lien), and the remaining 31.6% as unsecured. At the cut-off date, the portfolio was mainly represented by corporate borrowers (74.7% by GBV), and the properties securing the loans in the portfolio mainly comprised residential and commercial properties (47.1% and 14.0% by first lien property value, respectively). The secured collateral is concentrated in Northern regions of Italy (61.8% by first lien property value).

The transaction benefits from approximately EUR 26.9 million of collections recovered between the cut-off and the closing dates, which will be distributed in accordance with the priority of payments on the first interest payment date.

The transaction includes a cash reserve, sized at 4.0% of the principal outstanding of the Class A notes, and a recovery expenses cash reserve amounting to EUR 150,000, both fully funded with the proceeds of a limited recourse loan granted by the Sellers to the Issuer for EUR 9.9 million. The limited recourse loan also funds the EUR 100,000 retention amount. At each interest payment date, the cash reserve amount will be part of the available funds for the waterfall and will be replenished in the waterfall up to the respective target amount.

The margin of the Class B notes coupon, which represents mezzanine debt, will be paid ahead of the principal of the Class A notes unless certain performance-related triggers are breached. If a subordination event has not occurred, the Class B interest paid senior to the Class A notes outstanding principal is capped at 12.0%.

The ratings address the timely payment of interest and the ultimate repayment of principal on the Class A notes, and the ultimate payment of interest and principal on the Class B notes.

The securitisation includes the flexibility to implement a ReoCo structure.

DBRS Morningstar based its ratings on the 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, and the transaction’s legal and structural features. DBRS Morningstar’s BBB (sf) rating stress assumes a haircut of approximately 25.7% to the portfolio business plan prepared by the Special Servicers, while DBRS Morningstar’s CCC (sf) rating stress represents DBRS Morningstar’s base case and assumes 0% haircut to the special servicers’ business plan.

The final maturity date of the transaction is in November 2045.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp economic contraction, increases in unemployment rates and reduced investment activities. DBRS Morningstar anticipates that collections in European nonperforming loan (NPL) securitisations will continue to be disrupted in coming months and that the deteriorating macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collateral. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 period. These scenarios were last updated on 2 December 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/370672/global-macroeconomic-scenarios-december-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European NPL transactions and Coronavirus Disease (COVID-19), please see the following commentaries: https://www.dbrsmorningstar.com/research/362327 and https://www.dbrsmorningstar.com/research/360393.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Non-Performing Loans Securitisations” (13 May 2020).

DBRS Morningstar 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 at: https://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include a loan data tape as of 31 December 2019, historical performance for secured and unsecured loans, historical sales data, actual collections as of the end of November 2020, and portfolio business plan provided by the Special Servicers.

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

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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

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

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

-- Recovery Rates Used: Cumulative base case recovery amount of approximately EUR 294.7 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 downgrade of the Class A notes to BB (high) (sf).
-- DBRS Morningstar 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 (low) (sf).

-- Recovery Rates Used: Cumulative base case recovery amount of approximately EUR 396.8 million at the CCC (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 B notes at 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 below CCC (sf).

Generally, the conditions that lead to the assignment of a Negative or Positive trend are 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.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Sebastiano Romano, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 December 2020

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.

-- Rating European Non-Performing Loans Securitisations (13 May 2020),
https://www.dbrsmorningstar.com/research/360970/rating-european-non-performing-loans-securitisations.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020),
https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- European RMBS Insight Methodology (2 April 2020)
https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology

-- European RMBS Insight: Italian Addendum (21 December 2020),
https://www.dbrsmorningstar.com/research/371597/european-rmbs-insight-italian-addendum.
-- European CMBS Rating and Surveillance Methodology (13 December 2019),
https://www.dbrsmorningstar.com/research/354637/european-cmbs-rating-and-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020),
https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020),
https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020),
https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.

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 [email protected].