Morningstar DBRS Downgrades Class A and Confirms Class B Credit Ratings on Brisca Securitisation S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) took credit rating actions on the notes issued by Brisca Securitisation S.r.l. (the Issuer) as follows:

-- Class A Notes downgraded to CC (sf) from CCC (sf)
-- Class B Notes confirmed at C (sf)

Morningstar DBRS also removed the trends on all credit ratings.

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 payment of principal on or before the legal final maturity date. The credit rating on the Class B Notes addresses the ultimate payment of principal and interest. Morningstar DBRS does not rate the Class J Notes.

As of closing in July 2017, the Notes were backed by a EUR 961 million portfolio by gross book value, consisting of secured and unsecured Italian nonperforming loans originated by Banca Carige S.p.A., Banca Cesare Ponti S.p.A., and Banca del Monte di Lucca S.p.A. The majority of loans in the portfolio defaulted between 2011 and 2016 and are in various stages of resolution.

Prelios Credit Servicing S.p.A. (Prelios or the Servicer) services the receivables while Banca Finanziaria Internazionale S.p.A. (Banca Finint; formerly Securitisation Services S.p.A.) operates as the backup servicer.

CREDIT RATING RATIONALE
The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of November 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 Morningstar DBRS' expectations.
-- Business plan: The Servicer's updated business plan as of November 2023, received in January 2024, and the comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of February 2024 and the evolution of its core features since issuance.
-- Transaction liquidating structure: The order of priority, which 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). 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 net present value cumulative profitability ratio are lower than 90%. The interest subordination event has been triggered since the June 2022 interest payment date. According to the Servicer, the cumulative net collection ratio and net present value cumulative profitability ratio were 78.3% and 109.8% in June 2022, respectively. In December 2023, those ratios were 66.2% and 103.7%, respectively.
-- 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 fees. The cash reserve target amount is equal to 4% of the sum 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 December 2023, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 100.0 million, EUR 30.5 million, and EUR 11.8 million, respectively. As of the December 2023 payment date, the balance of the Class A Notes had amortised by 62.6% since issuance and the current aggregated transaction balance was EUR 142.3 million.

As of November 2023, the transaction was performing below the Servicer's initial business plan expectations. The actual cumulative gross collections equalled EUR 239.0 million whereas the Servicer's initial business plan estimated cumulative gross collections of EUR 365.4 million for the same period. Therefore, as of November 2023, the transaction was underperforming by EUR 126.4 million (-34.6%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 298.5 million at the BBB (high) (sf) stressed scenario and EUR 343.5 million at the B (low) (sf) stressed scenario. Hence, the transaction is underperforming Morningstar DBRS' initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, in January 2024, the Servicer delivered an updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections as of November 2023, resulted in a total of EUR 304.1 million, which is 22.6% lower than the total gross disposition proceeds of EUR 393.0 million estimated in the initial business plan. Excluding actual collections, the Servicer's expected future collections from December 2023 onward account for EUR 65.1 million, which is less than the current aggregated outstanding balance of the Class A Notes, and they are expected to be realised over a longer period of time. In Morningstar DBRS' CCC (sf) stressed scenario, the Servicer's updated forecast was only adjusted in terms of actual collections to 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, but considering the transaction structure, a payment default on the Notes would likely only occur a few years from now. Given the characteristics of the Class B Notes, as defined in the transaction documents, Morningstar DBRS notes that a default would likely only be recognised at transaction maturity or early termination.

The final maturity date of the transaction is in December 2037.

Morningstar DBRS' credit rating on the rated 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 documents that are not financial obligations.

Morningstar DBRS' long-term credit rating provides 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, AND 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 using 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" (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 surveillance section of 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 these credit ratings include the Issuer, Prelios, and Banca Finint which comprise, in addition to the information received at issuance, the investor report as of December 2023; the semiannual servicer report as of November 2023; the quarterly Servicer report as of February 2024; the loan-by-loan data as of February 2024; and the updated business plan received in January 2024.

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

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

Morningstar DBRS considers the data and information available to it for the purposes of providing these credit ratings 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 11 May 2023, when Morningstar DBRS confirmed its credit rating on the Class A Notes at CCC (sf) with a Negative trend and downgraded its credit rating on the Class B Notes to C (sf) from CC (sf), and changed the trend to Stable from Negative.

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

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

-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a confirmation of the Class A Notes at CC (sf)
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Class A Notes at CC (sf)
-- Morningstar DBRS 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)
-- Morningstar DBRS 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)

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.

These credit ratings are 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: 5 July 2017

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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
-- European RMBS Insight Methodology (25 March 2024),
https://dbrs.morningstar.com/research/430103
-- European RMBS Insight: Italian Addendum (2 October 2023),
https://dbrs.morningstar.com/research/421317
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219
-- 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 https://dbrs.morningstar.com/ or contact us at [email protected].