Morningstar DBRS Confirms Credit Ratings on POP NPLs 2019 S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the notes issued by POP NPLS 2019 S.r.l. (the Issuer) as follows:

-- Class A Notes at BBB (sf) with a Stable trend
-- Class B Notes at CCC (low) (sf) with a Negative trend

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 and the 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 the 1 January 2019 cut-off date, the Notes were backed by a EUR 826.7 million portfolio consisting of secured and unsecured Italian nonperforming loans sold to the Issuer by 12 Italian banks.

Prelios Credit Solutions S.p.A. (Prelios) and Fire S.p.A. (Fire; together with Prelios, the Servicers) service the receivables. Prelios Credit Servicing S.p.A. acts as the master servicer and Banca Finanziaria Internazionale S.p.A. (Banca Finint) operates as the backup servicer.

CREDIT RATING RATIONALE
The credit rating confirmations follow a review of the transaction and are 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 Servicers' initial business plan forecast, (2) the collection performance observed over recent months, and (3) a comparison between the current performance and Morningstar DBRS' expectations.
-- Updated business plan: The Servicers' updated business plan as of December 2023, received in May 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 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 either the cumulative net collection ratio or the net present value cumulative profitability ratio is lower than 90%. These triggers were not breached on the February 2024 interest payment date, with actual figures at 119.3% and 118.3%, respectively, according to the Servicers.
-- 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 February 2024, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 79.3 million, EUR 25.0 million, and EUR 5.0 million, respectively. As of the February 2024 payment date, the balance of the Class A Notes had amortised by 54.1% since issuance and the current aggregated transaction balance was EUR 109.3 million.

As of December 2023, the transaction was performing above the Servicers' business plan initial expectations. The actual cumulative gross collections equaled EUR 136.3 million whereas the Servicers' initial business plan estimated cumulative gross collections of EUR 105.9 million for the same period. Therefore, as of December 2023, the transaction was overperforming by EUR 30.4 million (28.7%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 73.5 million at the BBB (sf) stressed scenario and EUR 77.8 million at the CCC (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 May 2024, the Servicers delivered an updated portfolio business plan as of December 2023. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 136.3 million as of December 2023, results in a total of EUR 266.6 million, which is 5.2% lower than the total gross collections of EUR 281.2 million estimated in the initial business plan. Considering the performance to date, especially the positive profitability, the Servicers revised future expected collections considerably downwards.

Excluding actual collections, the Servicer's expected future collections from January 2024 account for EUR 130.2 million. The updated Morningstar DBRS BBB (sf) credit rating stress assumes a haircut of 20.1% to the Servicers' updated business plan, considering future expected collections. In Morningstar DBRS' CCC (sf) scenario, Morningstar DBRS only adjusted the updated Servicers' forecast in terms of actual collections to date and timing of future expected collections.

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

Morningstar DBRS' credit ratings on the Class A and Class B Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS' credit ratings do 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, 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 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 these credit ratings include the Issuer, Prelios, Fire, and Banca Finint, which comprise, in addition to the information received at issuance, the updated business plan as of December 2023, the investor report as of February 2024, the semiannual master servicer report as of December 2023, the semiannual servicer reports as of December 23, and quarterly loan-by-loan reports 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 23 May 2023, when Morningstar DBRS confirmed its credit rating on the Class A Notes and changed the trend to Stable from Negative. On the same date, Morningstar DBRS downgraded its credit rating on the Class B Notes to CCC (low) (sf) from CCC (sf), with negative trend.

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 104.0 million and EUR 130.2 at the BBB (sf) and CCC (sf) stress level respectively, 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 BB (high) (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 B (low) (sf).
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a downgrade of the Class B Notes to below CCC (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 B Notes to below CCC (low) (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
Credit Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Credit Rating Date: 23 December 2019

DBRS Ratings GmbH
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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
-- 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
-- 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
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024), https://dbrs.morningstar.com/research/426219
-- 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].