Press Release

DBRS Morningstar Takes Rating Actions on Popolare Bari NPLs 2016 S.r.l.

Nonperforming Loans

September 01, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed its rating on the Class A Asset Backed Floating Rate Notes due 2036 (the Class A notes) issued by Popolare Bari NPLs 2016 S.r.l. at CCC (sf) with a Negative trend and downgraded its rating on the Class B Asset Backed Floating Rate Notes due 2036 (the Class B notes) to C (sf) from CC (sf) and changed the trend to Stable from 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 maturity date in December 2036. The rating on the Class B notes addresses the ultimate payment of interest and principal on or before the legal final maturity date. DBRS Morningstar does not rate the Class J notes.

Given the characteristics of the Class B notes, as defined in the transaction documents, DBRS Morningstar notes that a default would most likely only be recognised at transaction maturity or early termination.

At issuance, the Notes were backed by a EUR 480.0 million portfolio by gross book value consisting of a mixed pool of Italian nonperforming residential, commercial, and unsecured loans originated by Banca Popolare di Bari S.c.p.A., Banca Tercas, and Banca Caripe S.p.A. All entities were subsequently merged into Banca Popolare di Bari S.c.p.A. (the Originator).

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

RATING RATIONALE
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Transaction performance: Assessment of portfolio recoveries as of 31 May 2022, 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 expectations.
-- Portfolio characteristics: loan pool composition as of May 2022 and the evolution of its core features since issuance.
-- Transaction liquidating structure: The payment 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).
-- Performance ratios and underperformance events: As per the most recent June 2022 payment report, the cumulative collection ratio was 57% and the net present value cumulative profitability ratio was 94%. Since the June 2020 interest payment date, the cumulative collection ratio has breached the 90% limit, so that interest payments on the Class B notes are subordinated to the repayment of principal on the Class A notes.
-- 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 costs. The cash reserve target amount is equal to 3% of the Class A and Class B notes’ principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from June 2022, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 72.2 million, EUR 14.0 million, and EUR 10.0 million, respectively. The balance of the Class A notes has amortised by approximately 43.0% since issuance. The current aggregated transaction balance is EUR 96.2 million.

As of May 2022, the transaction was performing significantly below the Servicer’s initial business plan expectations. The actual cumulative gross collections equalled EUR 80.7 million whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 144.2 million for the same period. Therefore, as of May 2022, the transaction was underperforming by EUR 63.5 million (-44%) compared with the initial business plan.

At issuance, DBRS Morningstar estimated cumulative gross collections of EUR 79.9 million at the BBB (high) (sf) stressed scenario and EUR 108.9 million at the B (high) (sf) stressed scenario for the same period. Therefore, as of May 2022, the transaction was performing slightly above DBRS Morningstar’s initial expectations in the BBB (high) stressed scenario and considerably below DBRS Morningstar’s initial expectations in the B (high) (sf) stressed scenario.

In March 2022, the Servicer provided DBRS Morningstar with a revised business plan, in which the Servicer assumed recoveries below the initial expectations and over a longer time period. The total cumulative gross collections from the updated business plan, including actual gross collections of EUR 79.0 million as of February 2022, result in a total of EUR 150.4 million, which is 23.8% lower than the total gross proceeds of EUR 197.2 million estimated in the initial business plan. The Servicer has been underperforming its updated business plan in the past quarter.

Excluding actual collections, the Servicer’s expected future collections from June 2022 now account for EUR 68.0 million, which is less than the current aggregated outstanding balance of the Class A and Class B notes, and less than the current outstanding balance of the Class A notes. In DBRS Morningstar’s CCC (sf) scenario, the Servicer’s updated forecast was only adjusted in terms of actual collections to the date and timing of future expected collections. Considering senior costs and interest due on the Notes, the full repayment of Class A principal is increasingly unlikely.

The final maturity date of the transaction is in December 2036.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect 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 transaction structure using Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (19 May 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/401817/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, Prelios, and Banca Finanziaria Internazionale S.p.A., which comprise, in addition to the information received at issuance, the updated business plan delivered in March 2022 as of February 2022; the investor report as of June 2022; the semiannual servicer report as of May 2022; and a loan-by-loan report as of May 2022.

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 November 2021, when DBRS Morningstar downgraded its rating on the Class A notes to CCC (sf) from BB (sf) and the Class B notes to CC (sf) from CCC (sf) with Negative trends.

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 with the parameters used to determine the ratings (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 below 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 below CCC (sf)
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a confirmation of the Class B notes at C (sf)
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a confirmation of the Class B notes at C (sf)

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: 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: 12 August 2016

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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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