Press Release

DBRS Morningstar Assigns Rating to Palatino SPV S.r.l.

Nonperforming Loans
June 25, 2021

DBRS Ratings GmbH (DBRS Morningstar) assigned a BBB (sf) rating with a Negative trend to the EUR 135 million Class A Notes issued by Palatino SPV S.r.l. (the Issuer).

The transaction entails the issuance of the Class A, Class B1, Class B2, and Class J Notes (collectively, the Notes) backed by an Italian nonperforming loan (NPL) portfolio sold by Credito Fondiario S.p.A. (Credito Fondiario) to the Issuer as part of a larger pool of receivables (the Original Claims) in December 2020. It represents the restructuring of the Notes originally issued to finance the aforementioned acquisition in the context of a securitisation transaction following the standard provisions under Italian securitisation law (Law n. 130/1999).

As of the 31 July 2020 cut-off date, the gross book value (GBV) of the portfolio was approximately EUR 865.3 million and comprised NPLs acquired by Credito Fondiario and originated by different Italian banks, including Banca Carige S.p.A. (58.3% of total GBV) and Credito Valtellinese SpA (17.1% of total GBV). The receivables are serviced by Credito Fondiario, which also acts as the master servicer for the transaction. Banca Finanziaria Internazionale S.p.A. was appointed as backup servicer for Credito Fondiario.

The pool is mostly composed of senior secured borrowers (at least one first economic lien) that represented approximately 98.6% of the GBV while junior secured debtors (at least a second economic lien) and unsecured borrowers represented the remaining 0.01% and 1.4% of the GBV, respectively. At the cut-off date, the portfolio mainly comprised corporate borrowers at 72.7% by GBV and the properties securing the loans in the portfolio mainly comprised residential and retail assets at 59.0% and 12.5% by property value, respectively. The secured collateral was concentrated in northern regions of Italy (53.7% by property value).

Actual collections pertaining to the portfolio from the cut-off date up to the end of May 2021 amount to EUR 37.9 million. According to the transaction documents, collections amounting to EUR 34.8 million that were recovered between the cut-off date and 30 April 2021 were distributed to the original noteholders, while portfolio proceeds from 1 May 2021 onward (including EUR 3.1 million of actual collections as of 31 May 2021) will be for the benefit of the restructured notes and will be distributed in accordance with the Issuer’s priority of payments on the first interest payment date in December 2021. Cumulative collection ratio and present value cumulative profitability ratio tests will be conducted based on collections received and recovery expenses incurred from 1 April 2021 onward and compared with the servicer business plan’s forecasts starting from the same date.

The transaction includes an amortising cash reserve sized at 4.5% of the principal outstanding of the Class A Notes, a general expenses cash reserve amounting to EUR 50,000, and a recovery expenses cash reserve amounting to EUR 500,000, all fully funded at closing with proceeds from the issuance of the Notes and from overissuance of the Class J Notes, if required. At each interest payment date, the cash reserve amount will be part of the Issuer’s available funds and it will be replenished in the waterfall up to the target amount.

Additionally, the transaction envisages the implementation of a Real Estate Owned Company (ReoCo) structure. ReoCos are real estate companies that are usually set up and held by junior and mezzanine investors of a transaction to maximise recoveries by (1) participating at auction to increase competitive tension between the parties interested in purchasing the real estate properties; and (2) acquiring and actively managing the assets to enhance their value. In connection with the ReoCo structure, the transaction includes a ReoCo cash reserve equal to EUR 2,000,000, which is also its target amount. The ReoCo cash reserve is fully funded at closing with proceeds from the issuance of the Notes and from the overissuance of the Class J Notes, if required, and can be used by the ReoCo as a source of funding to cover costs and expenses borne in connection with its activity, including corporate existence costs. On each ReoCo payment date, the ReoCo cash reserve is replenished up to its target amount via the distribution of ReoCo proceeds, according to the ReoCo order of priority. On the ReoCo payment date following the fifth anniversary from the execution of the ReoCo framework agreement (the end of the ReoCo Cash Reserve Availability Period), the ReoCo cash reserve will be distributed as part of the Issuer’s available funds.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal.

DBRS Morningstar based its rating on the analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the special servicer, 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 scenario assumes a haircut of approximately 19.1% to the portfolio business plan prepared by the special servicer.

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

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have resulted in a sharp economic contraction, increases in unemployment rates, and reduced investment activities. DBRS Morningstar anticipates that collections in European NPL securitisations will continue to be disrupted in the coming months and that the deteriorating macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collateral. The rating is based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar incorporated its expectation of a moderate medium-term decline in property prices; however, partial credit to house price increases from 2023 onwards is given in noninvestment grade scenarios. The Negative trend reflects the ongoing uncertainty amid the coronavirus pandemic.

On 16 April 2020, DBRS Morningstar published a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 18 June 2021. For details, see the following commentaries: and 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: and

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

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:

All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Nonperforming Loans Securitisations” (19 May 2021).

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:

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:

The sources of data and information used for this rating include a loan data tape as of 31 July 2020, historical performance for secured and unsecured loans, historical sales data, actual collections as of 31 May 2021, and portfolio business plan provided by Credito Fondiario.

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 this rating 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.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on

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

-- Recovery Rates Used: Cumulative base case recovery amount of approximately EUR 187.3 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 B (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:
DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage:

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Sebastiano Romano, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 25 June 2021

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The rating methodologies used in the analysis of this transaction can be found at:

-- Rating European Nonperforming Loans Securitisations (19 May 2021),
-- Legal Criteria for European Structured Finance Transactions (6 April 2021),
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020),
-- European RMBS Insight Methodology (3 June 2021),
-- European RMBS Insight: Italian Addendum (21 December 2020),
-- European CMBS Rating and Surveillance Methodology (26 February 2021),
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020),
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020),
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020),
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at:

For more information on this credit or on this industry, visit or contact us at