Press Release

DBRS Morningstar Upgrades Credit Rating on Titan SPV S.r.l., Maintains Stable Trend

Nonperforming Loans

July 14, 2023

DBRS Ratings GmbH (DBRS Morningstar) upgraded its credit rating on the Class A Notes issued by Titan SPV S.r.l. (the Issuer) to BBB (high) (sf) from BBB (sf). The trend on the credit rating remains Stable.

The transaction represents the issuance of Class A, Class B, and Class J Notes (collectively, the Notes). The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the transaction final maturity date. DBRS Morningstar does not rate the Class B or Class J Notes also issued under this transaction.

At issuance, the Notes were backed by a EUR 335.4 million portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming leases originated by Alba Leasing S.p.A., Banco BPM S.p.A., and Release S.p.A. As of March 2023, the securitised portfolio had a total GBV of EUR 258.7 million and was mostly composed of secured leases, representing approximately 89% of the GBV.

The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios or the Servicer) while Banca Finanziaria Internazionale S.p.A. (Banca Finint) has been appointed as backup servicer for Prelios.

CREDIT RATING RATIONALE
The upgrade follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 31 March 2023, focusing on: (1) a comparison between actual collections and the Servicer’s initial business plan forecast; (2) the collection performance observed over recent months; and (3) a comparison between the current performance and DBRS Morningstar’s expectations.
-- Updated business plan: The Servicer’s updated business plan as of September 2022, delivered in January 2023, and a comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of March 2023 and the evolution of its core features since issuance.
-- Transaction liquidating structure: The 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 begin to amortise following the repayment of the Class B Notes). Additionally, interest payments on the Class B Notes become subordinated to principal payments on the Class A Notes if the cumulative net collection ratio or the net present value cumulative profitability ratio is lower than 90%. As of the January 2023 interest payment date, these triggers had not been breached with actual figures at 166.38% and 192.42%, respectively, according to the Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve and a recovery expenses cash reserve providing liquidity to the structure and covering a potential interest shortfall on the Class A Notes and senior fees.
The cash reserve target amount is equal to 5.0% of the Class A Notes’ principal outstanding balance and the recovery expenses cash reserve target amount is equal to the LeaseCo costs for the following two collection periods based on the Updated Business Plan delivered by the servicer annually and its target amount is currently EUR 5.6 million . Both reserves are currently fully funded.
-- The exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2023, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 55.6 million, EUR 15.0 million, and EUR 10.1 million, respectively. As of the January 2023 payment date, the balance of the Class A Notes had amortised by 38.6% since issuance and the aggregated transaction balance was EUR 80.7 million.

As of December 2022, the transaction was performing above the Servicer’s business plan expectations. The actual cumulative gross collections equalled EUR 54.8 million whereas the Servicer’s initial business plan estimated
cumulative gross collections of EUR 42.2 million for the same period. Therefore, as of December 2022, the transaction was overperforming by EUR 12.5 million (29.7%) compared with the initial business plan expectations.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 15.3 million in the BBB (sf) stressed scenario. Therefore, as of December 2022, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in January 2023, the Servicer delivered an updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 45.9 million as of September 2022, resulted in a total of EUR 185.0 million, which is 0.6% lower than the total gross disposition proceeds of EUR 186.1 million estimated in the initial business plan. Considering the outperformance compared with the initial business plan, the Servicer revised its expectations for future collections downwards. Excluding actual collections, the Servicer’s expected future collections from January 2023 amount to EUR 121.3 million. The updated DBRS Morningstar BBB (high) (sf) credit rating stresses assume a haircut of 30.7% to the Servicer’s updated business plan, considering future expected collections from January 2023.

The upgrade to the Class A Notes addresses the transaction’s (1) improved credit enhancement, (2) faster amortisation of the Notes compared to the cap notional schedule, which mitigates the transaction’s exposure to the rising interest rate environment and adds additional cash flows to the transaction, and (3) the transaction’s overperformance compared with the Servicer’s initial expectations. The Class A notes would pass higher rating stress scenario; however, DBRS Morningstar believes that higher ratings would not be commensurate with the risk associated with the transaction, considering (i) that DBRS Morningstar does not yet deem this outperformance to be sustainable in the medium to long term, (ii) the increased exposure to land assets according to the updated loan by loan information and (iii) the exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

The final maturity date of the transaction is January 2041.

DBRS Morningstar’s credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this press release.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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.

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.

The sources of data and information used for this credit rating include the Issuer, Prelios, and Banca Finint, which comprise, in addition to the information received at issuance, the investor report as of January 2023; the semi-annual Servicer report as of December 2022; the quarterly Servicer report as of March 2023; and the updated business plan received in June 2023.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 14 July 2022, when DBRS Morningstar confirmed its credit rating on the Class A Notes at BBB (sf) and changed the trend to Stable from Negative.

The lead analyst responsibilities for this transaction have been transferred to Pablo Iturriaga.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a confirmation of the Class A Notes at BBB (high) (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Class A Notes at 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://registers.esma.europa.eu/cerep-publication/. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Pablo Iturriaga, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 December 2020

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The credit 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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