Morningstar DBRS Confirms Credit Rating on Class A Notes Issued by Prosil Acquisition S.A., Changes Trend to Negative

DBRS Ratings GmbH (Morningstar DBRS) confirmed its BB (sf) credit rating on the Class A notes issued by Prosil Acquisition S.A. (the Issuer) and changed the trend on the credit rating to Negative from Stable.

The transaction represents the issuance of the Class A, Class B, Class J, 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 on or before the final legal maturity date. Morningstar DBRS does not rate the Class B, Class J, or Class Z notes.

The notes are collateralised by a pool of mostly secured Spanish nonperforming loans (NPLs) originated by Abanca Corporación Bancaria, S.A. and Abanca Corporación División Immobilaria S.L. ProSil Acquisition S.A., Cell Number 1, Cell Number 2, and Cell Number 3 (the transferor) sold the receivables to ProSil Acquisition S.A., Cell Number 5 (the Issuer). As of the closing date in March 2019, the gross book value of the loan pool was approximately EUR 494.7 million. Cortland Investors II S.à r.l. operates as sponsor and retention holder in the transaction and, over time, acquired the three portfolios that are part of the pool (Avia, Lor, and Sil). HipoGes Iberia S.L. (the servicer) services the loans and manages the following Spanish property companies as at the closing date: Beautmoon Spain, S.L.; Osgood Invest, S.L.; Butepala Servicios y Gestiones S.L.; and Vetapana Servicios y Gestiones S.L.

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 December 2023, focusing on (1) a comparison between actual collections and the Servicer’s initial business plan forecast, (2) the collections performance observed over recent months, and (3) a comparison between the current performance and Morningstar DBRS’ expectations.
-- Updated business plan: The Servicer’s updated business plan as of December 2023, received in March 2024, and the comparison with the initial collection expectations.
-- Portfolio characteristics: Loan pool composition as of December 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 amortise following the full 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 collection ratio or the net present value (NPV) cumulative profitability ratio are lower than 90%. This trigger has been breached since the April 2020 interest payment date. As per the December 2023 servicing report, the cumulative collection ratio was 44.7% and the NPV cumulative profitability ratio was 87.3%.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure covering potential interest shortfalls on the Class A notes and senior fees. The cash reserve target amount is equal to 4.5% of the Class A notes’ principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2024, the outstanding principal amounts of the Class A, Class B, Class J, and Class Z notes were EUR 88.0 million, EUR 30.0 million, EUR 15.0 million, and EUR 16.0 million respectively. As of the January 2024 payment date, the balance of the Class A notes had amortised by 48.2% since issuance and the current aggregated transaction balance was EUR 149.0 million.

As of December 2023, the transaction was performing below the Servicer’s business plan initial expectations. The actual cumulative gross collections equaled EUR 140.8 million, whereas the Servicer’s initial business plan estimated cumulative gross collections of EUR 281.0 million for the same period. Therefore, as of December 2023, the transaction was underperforming by EUR 140.2 million (49.9%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 114.5 million at the BBB (low) (sf) stressed scenario. Therefore, as of December 2023, the transaction was performing above Morningstar DBRS’ initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in March 2024, the Servicer delivered an updated portfolio business plan as of December 2023.

The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 140.8 million as of December 2023, results in a total of EUR 296.4 million, which is 8.9% lower than the total gross collections of EUR 325.3 million estimated in the initial business plan.

Excluding actual collections, the Servicer’s expected future collections from January 2024 account for EUR 155.6 million. The updated Morningstar DBRS BB (sf) credit rating stress assumes a haircut of 22.0% to the Servicer’s updated business plan, considering future expected collections.

The final maturity date of the transaction is 31 October 2039.

Morningstar DBRS’ 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 the related Interest Payment Amounts and the related Class Balance.

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

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030.

Morningstar DBRS 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 March 2024), https://dbrs.morningstar.com/research/429051.

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

Morningstar DBRS 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for this credit rating include the Issuer, the Servicer and US Bank, which comprise, in addition to the information received at issuance, the updated business plan from the Servicer as of December 2023, the investor report as of January 2024, and the quarterly servicer report as of December 2023.

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

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

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

Morningstar DBRS 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 17 November 2022, when Morningstar DBRS downgraded the credit rating on the Class A notes to BB (sf) from BB (high) (sf) and changed the trend to Stable from Negative.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS 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 121.5 million at the BB (sf) stress level, a 5% and 10% decrease in the base-case recovery rate.

-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a downgrade of the Class A notes to B (low) (sf).
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a downgrade of the Class A notes to CCC (sf).

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS’ outlooks and credit ratings are monitored.

For further information on Morningstar DBRS 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 Morningstar DBRS 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: William Taliento, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 10 July 2019

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Rating European Nonperforming Loans Securitisations (5 June 2023),
https://dbrs.morningstar.com/research/415383
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024), https://dbrs.morningstar.com/research/426219
-- European RMBS Insight Methodology (25 March 2024),
https://dbrs.morningstar.com/research/430103
-- European RMBS Insight: Spanish Addendum (8 March 2024),
https://dbrs.morningstar.com/research/429109
-- European CMBS Rating and Surveillance Methodology (17 January 2024),
https://dbrs.morningstar.com/research/426818
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://dbrs.morningstar.com/research/420754
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].