Press Release

DBRS Morningstar Confirms Credit Rating on Fino 1 Securitisation S.r.l., Trend Remains Stable

Nonperforming Loans

August 17, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its BBB (sf) rating on the Class C Notes issued by Fino 1 Securitisation S.r.l. (the Issuer) and maintained the Stable trend.

The transaction represents the issuance of Class A, Class B, Class C, and Class D Notes (collectively, the Notes). DBRS Morningstar discontinued its ratings on the Class A and B Notes following their full redemption on the January 2023 and April 2023 interest payment date (IPD), respectively. The rating on the Class C Notes addresses the ultimate payment of interest and principal. DBRS Morningstar does not rate the Class D Notes.

At issuance, the Notes were backed by a EUR 5.37 billion by gross book value portfolio consisting of secured and unsecured Italian nonperforming loans originated by UniCredit S.p.A. (the Originator).

The receivables are serviced by doValue S.p.A. (doValue or the Servicer). No backup servicer has been appointed.

CREDIT RATING RATIONALE
The rating confirmation follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: Assessment of portfolio recoveries as of June 2023, 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, and (3) a comparison between the current performance and DBRS Morningstar’s expectations.
-- Portfolio characteristics: Loan pool composition as of June 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 C Notes will amortise following the repayment of the Class B Notes).
-- Liquidity support: The transaction benefited from an amortising cash reserve that provided liquidity to the structure, covering potential interest shortfalls on the Class A Notes and senior fees.
The cash reserve, whose target amount was equal to 5% of the principal outstanding on the Class A, was entirely released on the January 2023 IPD after the full redemption of the Class A Notes’ outstanding balance.
-- 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 July 2023, the outstanding principal amounts of the Class C and Class D Notes were EUR 2.1 million and EUR 50.3 million, respectively. As of the July 2023 payment date, the balance of the Class C Notes had amortised by 94.8% since issuance.

As of June 2023, the transaction was performing below the Servicer’s initial business plan expectations. The actual cumulative gross collections equalled EUR 1,099.4 million, whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 1,202.1 million for the same period. Therefore, as of June 2023, the transaction was underperforming by EUR 102.7 million (-8.5%) compared with the initial business plan.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 650.7 million in the BBB (high) (sf) stressed scenario, EUR 703.3 million in the BB (high) (sf) stressed scenario, and EUR 707.0 million in the BB (sf) stressed scenario (the initial ratings for the Class A, B and C respectively). Therefore, as of June 2023, the transaction was performing above DBRS Morningstar’s stressed expectations.

In July 2022, the Servicer provided DBRS Morningstar with a revised business plan. In the updated business plan, the Servicer assumed higher recoveries compared with initial expectations. The cumulative gross collections (including actual collections) from the updated business plan totalled EUR 1,579.4 million, which is 0.8% higher than the EUR 1,567.2 million expected in the initial business plans.

Excluding actual collections, the Servicer’s expected future collections from July 2023 account for EUR 429.9 million. The updated DBRS Morningstar BBB (sf) rating stress assumes a haircut of 39.3% to the Servicer’s updated business plan, considering future expected collections from July 2023.

The final maturity date of the transaction is in October 2045.

DBRS Morningstar’s credit rating on the Class C Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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/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, doValue, and BNP Paribas Succursale Italia which comprise, in addition to the information received at issuance, the updated business plan delivered in July 2022, the investor report as of July 2023, the quarterly servicer report as of June 2023, and the loan-level data as of December 2021.

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 19 May 2023, when DBRS Morningstar discontinued its BBB (high) (sf) credit rating on the Class B Notes following the full redemption of the Class B Notes.

Prior to that, on 8 September 2022, DBRS Morningstar upgraded its ratings on the notes as follows:
-- Class A Notes to A (low) (sf) from BBB (high) (sf)
-- Class B Notes to BBB (high) (sf) from BB (high) (sf)
-- Class C Notes to BBB (sf) from BB (sf)

Information regarding DBRS Morningstar 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):

-- Recovery rates used: Cumulative base case recovery amount of approximately EUR 184.9 million 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 confirmation of the Class C Notes at BBB (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Class C Notes at BBB (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 rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Clarice Baiocchi, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 November 2017

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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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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