Press Release

DBRS Morningstar Upgrades Ratings on Civitas SPV S.r.l. - Series 2019-1

Structured Credit

July 13, 2022

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the notes issued by Civitas SPV S.r.l. - Series 2019-1 (the Issuer) as follows:

-- Class A Notes upgraded to AA (high) (sf) from AA (low) (sf)
-- Class B Notes upgraded to A (low) (sf) from BBB (low) (sf)

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in October 2055. The rating on the Class B Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date.

The upgrades follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the April 2022 payment date;
-- Base case probability of default (PD) and updated default and recovery rates on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels; and
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19).

The transaction is a static cash flow securitisation collateralised by a portfolio of loans to small and medium-size enterprises (SME), entrepreneurs, artisans, and producer families based in Italy. The transaction closed in October 2019. Banca di Cividale S.p.A. (Banca di Cividale) granted and services the loans. At closing, the EUR 451.0 million portfolio consisted of both secured (77.0% of the initial portfolio balance) and unsecured (23.0%) loans, and was concentrated in Friuli-Venezia Giulia (61.7%) and Veneto (33.6%).

PORTFOLIO PERFORMANCE
As of the April 2022 payment date, loans 0 to 30 days, 30 to 60 days, and 60 to 90 days in arrears represented 9.9%, 0.3%, and 0.7% of the outstanding portfolio balance, respectively, while the share of loans more than 90 days in arrears was 0.2%. Gross cumulative defaults amounted to 2.0% of the initial portfolio balance, with recoveries of 10.4% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and recovery rate assumptions to 38.2% and 61.6%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the Class A and Class B Notes. As of the April 2022 payment date, credit enhancement to the Class A Notes increased to 45.8% from 36.5% at the time of the last annual review in July 2021, while credit enhancement to the Class B Notes increased to 28.7% from 22.1%.

The transaction benefits from liquidity support provided by an amortising cash reserve, available to cover senior expenses, interest payments on the Class A Notes and, as long as the mezzanine notes trigger is not breached, interest payments on the Class B Notes. The reserve amortises to a target balance of 2.0% of the Class A and Class B Notes, subject to a floor of EUR 1.85 million and, as of the April 2022 payment date, was at its target balance of EUR 4.5 million.

BNP Paribas Securities Services, Milan branch (BNPPSS Milan) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on BNPPSS Milan, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

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. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many SME transactions. 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 increased the expected PD on receivables granted to enterprises operating in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus, and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 29 June 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/399022/baseline-macroeconomic-scenarios-for-rated-sovereigns-june-2022-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 10 February 2022, DBRS Morningstar updated its 18 May 2020 commentary outlining the impact of COVID-19 crisis on the performance of DBRS Morningstar-rated structured credit transactions in Europe almost two years on. For more details, please see: https://www.dbrsmorningstar.com/research/392167/two-years-into-covid-19-risks-to-european-structured-credit-transactions and https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact on the credit analysis.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the structure of the transaction in its proprietary cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Rating CLOs Backed by Loans to European SMEs” (10 June 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 surveillance section of 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 investor reports provided by Securitisation Services S.p.A. (the Computation Agent), servicer reports provided by Banca di Cividale, and loan-level data provided by the European DataWarehouse GmbH.

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 purpose 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 13 July 2021, when DBRS Morningstar upgraded its rating on the Class A Notes to AA (low) (sf) from A (high) (sf), confirmed its rating on the Class B Notes at BBB (low) (sf), and removed the Under Review – Negative Implications status on the Class B Notes.

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

Sensitivity Analysis: to assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the base case):

-- PD used: Base case PD of 7.1% for mortgage loans and 4.4% for nonmortgage loans, a 10% and 20% increase on the base case PD.
-- Recovery rates used: Base case recovery rate of 61.6%, a 10% and 20% decrease in the base case recovery rate.

DBRS Morningstar concluded that a hypothetical increase of the base case PD by 20%, ceteris paribus, would not impact the AA (high) (sf) rating of the Class A Notes or the A (low) (sf) rating of the Class B Notes. A hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would not impact the AA (high) (sf) rating of the Class A Notes, but would result in a decrease in the rating of the Class B Notes to BBB (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10% would not impact the AA (high) (sf) rating of the Class A Notes, but would result in a decrease in the rating of the Class B Notes to BBB (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: 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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 17 October 2019

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 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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