DBRS Morningstar Assigns BBB (high) (sf) Rating with a Stable Trend to Grogu SPV S.r.l.

DBRS Ratings GmbH (DBRS Morningstar) assigned a BBB (high) (sf) rating with a Stable trend to the EUR 460 million Class A notes issued by Grogu SPV S.r.l. (the Issuer).

The rating addresses the timely payment of interest and ultimate repayment of principal on or before the final maturity date of the Class A notes.

As of the 31 May 2021 cutoff date, the notes were backed by a EUR 3.1 billion portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming loans mostly originated by UBI Banca Unione di Banche Italiane S.p.A. (“UBI”) and currently owned by Intesa Sanpaolo S.p.A. (ISP) and BPER Banca S.p.A. (BPER) (together, the Sellers) as a result of the merger by absorption of UBI into ISP. Intrum Italy S.p.A. (Intrum) and Prelios Credit Servicing S.p.A.(PRECS) (together, the Servicers) service the receivables. PRECS has been appointed as backup servicer and will also act as master servicer in case of termination of the agreement with the master servicer, Banca Finanziaria Internazionale S.p.A.

The securitised portfolio is composed of secured and unsecured loans: 50.7% of the loans by GBV are classified as secured senior (at least a first economic lien), 3.6% as secured junior (at least a second economic lien), and the remaining 45.7% as unsecured. At the cutoff date, the portfolio was mainly represented by corporate borrowers (81.2% by GBV), and the properties securing the loans in the portfolio mainly comprised residential (44.5% by property value) and industrial (23.9% by property value) properties. The secured collateral was concentrated (43.3% by property value) in the Northern regions of Italy.

The transaction benefits from approximately EUR 33.5 million of collections recovered between cutoff date and end of October 2021 for ISP loans and end of November 2021 for BPER loans, 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 of EUR 2 million, both fully funded with the proceeds of a limited recourse loan granted to the Issuer by ISP and BPER for EUR 20.6 million. The limited recourse loan also funds the EUR 200,000 retention amount. At each interest payment date, the cash reserve amount and the recovery expenses cash reserve 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 represent mezzanine debt, will be paid ahead of the principal of the Class A notes unless certain performance-related triggers (present value cumulative profitability ratio <85%; or cumulative collection ratio <90%; or interest shortfall on the Class A notes) are breached.

DBRS Morningstar based its rating on an analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the 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 (high) (sf) rating stress assumes a haircut of approximately 20.7% to the servicer’s initial business plan in terms of gross disposition proceeds for the portfolio.

The final maturity date of the transaction is January 2042.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that negative effects may continue in the coming months for many nonperforming loan (NPL) transactions. In particular, the deterioration of macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collaterals. The ratings are based on additional analysis 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 residential property prices, but gave partial credit to house price increases from 2023 onward in non-investment-grade scenarios.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings

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/384146 and https://www.dbrsmorningstar.com/research/360393.

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 rating is: “Rating European Nonperforming Loans Securitisations” (19 May 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.

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 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 this rating include a loan data tape as of 31 May 2021, historical performance for secured and unsecured loans, historical sales data, and the portfolio business plan provided by the Servicers and the Sellers.

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 www.dbrsmorningstar.com.

Sensitivity Analysis: 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 626.4 million at the BBB (high) (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 (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.

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

Lead Analyst: Alberto Cruces de la Rosa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 December 2021

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

-- Rating European Nonperforming Loans Securitisations (19 May 2021),
https://www.dbrsmorningstar.com/research/378681/rating-european-nonperforming-loans-securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations (29 October 2021),
https://www.dbrsmorningstar.com/research/ 387042/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- European RMBS Insight Methodology (3 June 2021),
https://www.dbrsmorningstar.com/research/379557/european-rmbs-insight-methodology.
-- European RMBS Insight: Italian Addendum (10 December 2021),
https://www.dbrsmorningstar.com/research/389473/european-rmbs-insight-italian-addendum.
-- European CMBS Rating and Surveillance Methodology (26 February 2021),
https://www.dbrsmorningstar.com/research/ 374399/european-cmbs-rating-and-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
https://www.dbrsmorningstar.com/research/ 384512/operational-risk-assessment-for-european-structured-finance-servicers.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
https://www.dbrsmorningstar.com/research/ 382171/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021),
https://www.dbrsmorningstar.com/research/ 384624/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
https://www.dbrsmorningstar.com/research/ 384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/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: 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].