Press Release

DBRS Morningstar Confirms Credit Rating of BBB (sf) with a Stable Trend on Titan Financing S.à r.l.

Nonperforming Loans

November 17, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its credit rating on the Class A notes issued by Titan Financing S.à r.l. (the Issuer) at BBB (sf) with a Stable trend.

The transaction represents the issuance of Class A and Class Z notes (collectively, the Notes). The credit rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal. DBRS Morningstar does not rate the Class Z notes.

The notes are collateralised by a pool of Cypriot nonperforming loans (NPLs) initially originated by Bank of Cyprus Public Limited Company (BoC) and real estate owned properties (REOs). As of August 2022, the total exposure of the portfolio was approximately EUR 1.0 billion. Most of the portfolio relates to NPLs secured over Cypriot real estate collateral, with an aggregated open market value (OMV) of EUR 472.9 million (including only first-lien mortgages), as well as REOs with an OMV of EUR 146.5 million.

The portfolio was sold by BoC to B4 Galium Holding S.à r.l. (the sponsor). In January 2023, servicing for the portfolio transferred from BoC to Themis Portfolio Management Limited (the Servicer), an affiliate of the sponsor and the Cypriot credit acquiring company (Themis Portfolio (H3) Management Holdings Limited, the CyCAC).

CREDIT RATING RATIONALE
The credit rating confirmation follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 31 August 2023, focusing on the following: (1) a comparison between actual collections and the 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 October 2022 and a comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of August 2023 and the evolution of its core features since issuance.
-- Cash Sweep Event: If a Cash Sweep Event occurs, then the transaction benefits from a sequential amortisation where the Class Z notes will begin to amortise following the full repayment of the Class A notes. In the event of a cash sweep, the transaction also benefits from a liquidating structure where interest on the Class Z notes is subordinated to principal payments on the Class A notes. If no Cash Sweep Event occurs, then only 80% of the available funds will be used to repay the Class A notes, and the rest will be used to pay junior servicing fees, interest, and principal on the Class Z notes. As of September 2023 interest payment date, no Cash Sweep Event occurred; therefore, 20% of the Issuer Available Funds left after the payment of the more senior items in the waterfall were paid towards interest and principal of the junior notes.
-- According to the transaction documents, a Cash Sweep Event will occur in the case of: (1) an event of default, (2) a servicer termination event, (3) the principal amount outstanding of the Class A Notes being greater than the target note amount set out in the transaction documents in respect of such interest payment date, (4) the principal amount outstanding of the Class Z Notes being less than 10% of the principal amount outstanding of the Class Z Notes on the issue date; or (5) the aggregate value of the properties that continue to be owned by the CyCAC being 10% or less than the aggregate value of the properties owned by the CyCAC as at the issue date.

-- Liquidity support: The transaction benefits from an amortising 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 5.75% of the Class A notes’ principal outstanding balance and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from September 2023, the outstanding principal amounts of the Class A and Class Z notes were EUR 235.7 million and EUR 747.9 million, respectively. As of the September 2023 payment date, the balance of the Class A notes had amortised by 11.0% since issuance, and the current aggregated transaction balance was EUR 983.7 million.

Considering pre-issue date actuals, as of August 2023, the portfolio registered EUR 100.4 million of gross collections, whereas the initial business plan estimated cumulative gross collections of EUR 83.9 million for the same period. Therefore, as of August 2023, actual gross collections were 19.6% higher than initial business plan expectations. However, EUR 54.1 million of actual gross collections, received between June 2021 and the issue date, do not pertain to the securitisation. As of August 2023, the actual collections, distributed by the issuer as part of the issuer available funds were equal to EUR 46.3 million.

At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 18.1 million at the BBB (sf) stressed scenario. Therefore, as of August 2023, the transaction was performing above DBRS Morningstar’s initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in February 2023, the Servicer delivered an updated portfolio business plan. The updated portfolio business plan, including the pre-issue date gross collections of EUR 54.1 million as of October 2022, results in a total of EUR 507.8 million, which is 1.5% higher than the total gross disposition proceeds of EUR 500.4 million estimated in the initial business plan. Excluding actual collections, the Servicer’s expected future collections from September 2023 amount to EUR 406.3 million. The updated DBRS Morningstar BBB (sf) credit rating stresses assume a haircut of 29.8% to the Servicer’s updated business plan, considering future expected collections.

During the first three quarters, the transaction performed in line with the projections set out in the updated business plan as of October 2022. Furthermore, as of the September 2023 interest payment date, the overperformance of the transaction compared to DBRS Morningstar initial stressed expectations, led to a faster than expected amortisation of the Class A Notes and a lower aggregate amount of Class A notes interest being payable.

The final maturity date of the transaction is 31 March 2067.

DBRS Morningstar’s credit rating on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Interest Payment Amounts and the related Class Balance.

DBRS Morningstar’s credit rating do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit rating provides 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 www.dbrsmorningstar.com/research/416784.

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 ratings is: “Master European Structured Finance Surveillance Methodology” (22 October 2023), https://www.dbrsmorningstar.com/research/422281/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/421590/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 this credit rating include the Issuer and the Servicer which comprise, in addition to the information received at issuance, the investor report as of September 2023; the updated business plan as of October 2022, and the quarterly servicer report as of August 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.

This is the first credit rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to William Taliento.

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 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 285.4 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 downgrade on the Class A notes to BBB (low) (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a downgrade on the Class A notes to BB (low) (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: Willian Taliento, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 18 November 2022

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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