Press Release

DBRS Morningstar Assigns Rating of BBB (sf), Stable Trend, to Organa SPV S.r.l.

Nonperforming Loans

April 21, 2022

DBRS Ratings GmbH (DBRS Morningstar) assigned a BBB (sf) rating with a Stable trend to the EUR 970,000,000 Class A Notes issued by Organa SPV S.r.l. (the Issuer).

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final maturity date in April 2042.

As of the 31 December 2021 cut-off date, the Class A Notes were backed by a EUR 8.5 billion portfolio by gross book value (GBV) of Italian unsecured and secured nonperforming loans (NPLs) originated by Intesa Sanpaolo SpA (ISP; the Seller or the Originator). Intrum Italy S.p.A. (Intrum or the Special Servicer) services the receivables while Banca Finanziaria Internazionale S.p.A. acts as the Master Servicer for the transaction. Intrum will also act as backup servicer facilitator in case of the Master Servicer’s termination.

At the cut-off date, the securitised portfolio included unsecured loans representing approximately 69.3% of the GBV and secured loans representing the remaining 30.7% of the GBV, approximately 93.6% by GBV of which benefits from a first-ranking lien mortgage. At the cut-off date, the portfolio mainly consisted of corporate borrowers (82.5% by GBV) and the properties securing the loans in the portfolio were mainly residential (54.4% by updated real estate value). The secured collateral was mainly concentrated in the northern regions of Italy (45.2% by updated real estate value) with Lombardy as the most represented region (20.1% by updated real estate value).

The transaction benefits from approximately EUR 48.8 million of collections recovered between the 1 January 2022 economic effective date and 28 February 2022, which will be used as of the closing date to pay certain upfront costs and fees, including the cap premium, while the exceeding amount will be distributed in accordance with the priority of payments on the first interest payment date (IPD).

The transaction includes a limited-recourse loan that the Seller granted to the Issuer for an amount equal to EUR 41.0 million. The limited-recourse loan will be used at closing to fund the EUR 200,000 retention amount, the EUR 2.0 million recovery expenses cash reserve, and the EUR 38.8 million initial cash reserve amount. The target amount of the cash reserve on each IPD is sized at 4.0% of the principal outstanding on the Class A Notes. On each IPD, 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 transaction includes flexibility to implement 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 will include a ReoCo cash reserve equal to EUR 1.0 million, which will provide the ReoCo with the liquidity required to perform its activities. The implementation of the ReoCo structure will be subject to the execution of the ReoCo transaction documents no later than the final activation date, which is the day before the calculation date in December 2024. The rating assigned to the Class A Notes at closing reflects DBRS Morningstar's analysis of the features of the proposed ReoCo structure and a review of the framework agreement and relevant legal documents. The potential nonimplementation of the ReoCo structure has no impact on the Class A Notes at closing.

Interest on the Class B Notes, which represent mezzanine debt, will be paid ahead of the principal on the Class A Notes unless certain performance-related triggers (i.e., a present value cumulative profitability ratio of less than 90%, or a cumulative collection ratio of less than 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 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 23.5% to the Special Servicer’s initial business plan for the portfolio.

The final maturity date of the transaction is 30 April 2042.

RATING RATIONALE
DBRS Morningstar based its rating on a review of the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- The credit quality of the loan portfolio and the ability of the Special Servicer to perform collections and resolution activities.
-- DBRS Morningstar estimated the expected collections from the loans based on the proposed business plan and used them as an input into its cash flow analysis.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the rated notes according to the terms of the transaction documents.
-- The sovereign rating on the Republic of Italy, which DBRS Morningstar currently rates BBB (high) and R-1 (low) with Stable trends as of the date of this press release.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions”.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures had caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. For this transaction, DBRS Morningstar incorporated its expectation of a moderate medium-term decline in commercial real estate prices for certain property types.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 24 March 2022. The 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/394150/baseline-macroeconomic-scenarios-for-rated-sovereigns-march-2022-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 secured historical performance data provided by Intrum on 25 February 2022 (repossession data for secured loans sold between 2005 and 2021) and unsecured historical performance data (historical yearly recovery curves from static pool of unsecured loans over a period of 17 years) as well as a business plan and loan tape shared on 13 April 2022 by the Special Servicer and the Seller, respectively.

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.

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 confirm the rating (the Base Case):

-- Recovery Rates Used: Cumulative Base Case recovery amount of approximately EUR 1.32 billion 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 (high) (sf).

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: Sebastiano Romano, Vice President
Rating Committee Chair: David Lautier, Senior Vice President, Global Esoteric Finance
Initial Rating Date: 21 April 2022

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.

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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