Press Release

DBRS Morningstar Downgrades Rating on Class A and Confirms Rating on Class B Issued by Brisca Securitisation S.r.l., Trends Remain Negative

Nonperforming Loans

August 04, 2021

DBRS Ratings GmbH (DBRS Morningstar) downgraded its rating on the Class A Notes issued by Brisca Securitisation S.r.l. (the Issuer) to B (high) (sf) from BBB (low) (sf) and confirmed its rating on the Class B Notes at CCC (sf). The trend on all ratings remains Negative.

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

As of closing (July 2017), the Notes were backed by a EUR 961 million by gross book value (GBV) portfolio consisting of secured and unsecured Italian nonperforming loans (NPLs) originated by Banca Carige S.p.A. (Carige), Banca Cesare Ponti S.p.A. (BCP), and Banca del Monte di Lucca S.p.A. (BML), together Gruppo Banca Carige (the Originator). The majority of loans in the portfolio defaulted between 2011 and 2016 and are in various stages of resolution.

The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios or the Servicer) while Securitisation Services S.p.A. operates as backup servicer.

RATING RATIONALE
The rating actions follow a review of the transaction and are based on the following analytical considerations:
-- Transaction performance: assessment of portfolio recoveries as of 31 May 2021, focusing on: (1) a comparison between actual collections and the Servicer´s initial business plan forecast; (2) the collection performance observed over the past months, including the period following the outbreak of the Coronavirus Disease (COVID-19); and (3) a comparison between the current performance and DBRS Morningstar’s initial expectations.
-- The Servicer’s updated business plan as of November 2020, received in March 2021, and the comparison with the initial collection expectations.
-- Portfolio characteristics: loan pool composition as of 31 May 2021 and 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 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 net present value cumulative profitability ratio are lower than 90%. These triggers were not breached on the June 2021 interest payment date, with the actual figures at 90.94% and 110.76%, respectively, according to the Servicer.
-- 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 fees. The cash reserve target amount is equal to 4% of the sum of Class A and Class B Notes principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from June 2021, the outstanding principal amounts of the Class A, Class B, and Class J Notes were equal to EUR 139.7 million, EUR 30.5 million, and EUR 11.8 million, respectively. The balance of the Class A notes has amortised by approximately 47.8% since issuance.

As of May 2021, the transaction was performing below the Servicer’s initial expectations. The actual cumulative gross collections equalled EUR 186.2 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 216.1 million for the same period. Therefore, as of May 2021, the transaction was underperforming by EUR 29.9 million (-13.8%) compared with initial expectations.

In March 2021, the Servicer provided DBRS Morningstar with a revised business plan as of November 2020. In this updated business plan, the Servicer assumed lower recoveries than initially. The total cumulative gross collections from the updated business plan amounted to EUR 351.5 million (including gross collections until November 2020), which is 10.6% lower than the EUR 393.0 million expected in the initial business plan.

Without including actual collections, the Servicer’s expected future collections from June 2021 now account for EUR 164.2 million versus EUR 176.9 million in the initial business plan; hence, the Servicer revised its expectation for collection on the remaining portfolio downwards, and it is slightly below the current aggregated outstanding balance of the Class A and Class B Notes. The updated DBRS Morningstar B (high) (sf) rating stress assumes a haircut of 5.8% to the Servicer’s latest business plan, considering future expected collections.

Although, as of May 2021, the transaction was performing slightly above DBRS Morningstar’s initial BBB (high) (sf) rating stress assumptions, the decision to further downgrade the rating of the Class A Notes, confirm the Class B Notes, and maintain the Negative trends is based on the observed performance trend of the transaction to date, on the analysis of the updated business plan provided by the Servicer in March 2021, as well as on DBRS Morningstar’s expectations with regard to Italy’s economy and real estate markets amid the coronavirus pandemic.

The final maturity date of the transaction is 31 December 2037.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The coronavirus 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 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. For this transaction, DBRS Morningstar incorporated its revised expectation of a moderate medium-term decline in residential property prices, albeit partial credit to house price increases from 2023 onwards is given in non-investment-grade scenarios.

On 16 April 2020, the DBRS Morningstar Sovereign group released 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: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings 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/362326 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

ESG CONSIDERATIONS
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/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (8 February 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.com/about/methodologies.

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 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/381451/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the Issuer and/or its agents, which comprise, in addition to the information received at issuance, the updated business plan from the Servicer received in March 2021, the investor report as of June 2021, the semiannual Servicer reports, and the Quarterly Loan by Loan Report as of May 2021.

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

At the time of the initial ratings, 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.

The last rating actions on this transaction took place on 4 August 2020, when DBRS Morningstar downgraded its rating on the Class A Notes to BBB (low) (sf) from BBB (high) (sf) and downgraded its rating on the Class B Notes to CCC (sf) from B (low) (sf), and assigned a Negative trend to the ratings.

The lead analyst responsibilities for this transaction have been transferred to Sebastiano Romano.

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 confirm the rating (the base case):

-- 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 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 A Notes to CC (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class B Notes to CC (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 to C (sf).

Generally, 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: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are 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: 5 July 2017

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The rating methodologies used in the analysis of this transaction can be found at: http://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: http://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].

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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