Press Release

DBRS Morningstar Maintains Under Review with Negative Implications Status on 2Worlds S.r.l.

Nonperforming Loans

May 20, 2022

DBRS Ratings GmbH (DBRS Morningstar) maintained the Under Review with Negative Implications status on the BB (sf) and CCC (sf) ratings on the Class A and Class B notes, respectively, issued by 2Worlds S.r.l. (the Issuer).

RATING RATIONALE
The maintenance of the Under Review with Negative Implications status is based on the following analytical considerations:
-- Transaction performance: as reported in the most recent semiannual servicer report, the actual cumulative gross collections as of 31 December 2021 were EUR 180.9 million whereas the special servicer’s initial business plan assumed cumulative gross collections of EUR 217.3 million for the same period. Therefore, the transaction is underperforming by 16.7% compared with the servicer’s initial expectations.
-- Performance ratios and underperformance events: as per the January 2022 payment report, the cumulative net collection ratio was 88.0% and the net present value cumulative profitability ratio was 114.6%. A subordination event has not occurred as it would occur if the cumulative net collection ratio or the net present value cumulative profitability ratio was less than 85% or with Class A interest shortfalls.
-- Special servicer’s updated business plan: in April 2021, DBRS Morningstar received the special servicer’s third revised business plan as of December 2020. The third updated business plan displays a 16.9% decrease in gross collections compared with the servicer’s initial expectations and an additional 10.0% decrease compared with the second updated business plan delivered in April 2020. The servicer has been underperforming its third updated business plan over the past two semesters. The monitoring agent has not yet released a fourth updated business plan as it does not have the required approvals.

Following the receipt of the fourth updated business plan, DBRS Morningstar will assess the changes from previous expectations in detail, which may result in adjustments to its stressed assumptions.

The final maturity date of the transaction is in January 2037.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures had caused an 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. 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/396929.

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 2022).

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.

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 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 these ratings include the Issuer, Cerved Credit Management S.p.A., and Banca Finint S.p.A. which comprise, in addition to the information received at issuance, the investor report as of January 2022; the semiannual servicer report as of December 2021; the loan-by-loan data as of December 2021; and the third updated business plan received in April 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 action on this transaction took place on 4 February 2022, when DBRS Morningstar placed its BB (sf) and CCC (sf) ratings on the Class A and Class B notes, respectively, Under Review with Negative Implications.

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

These ratings are Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. Sensitivity analysis is not applicable.

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. 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: Clarice Baiocchi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 25 June 2018

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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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: 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].

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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