Morningstar DBRS Upgrades and Confirms Credit Ratings on Civitas SPV S.r.l. - Series 2019-1

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes issued by Civitas SPV S.r.l. - Series 2019-1 (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (sf)

The credit ratings on the Class A and Class B Notes address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in October 2055.

CREDIT RATING RATIONALE
The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of delinquencies, defaults, and losses, as of the April 2024 payment date;
-- The one-year base case probability of default (PD) and updated default and recovery rates on the remaining pool of receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a cash flow securitisation collateralised by a portfolio of loans to small and medium-size enterprises, entrepreneurs, artisans, and producer families based in Italy. The transaction closed in October 2019. Banca di Cividale S.p.A. (Banca di Cividale) granted and services the loans. At closing, the EUR 451.0 million portfolio consisted of both secured (77.0% of the initial portfolio balance) and unsecured (23.0%) loans and was concentrated in Friuli-Venezia Giulia (61.7%) and Veneto (33.6%).

PORTFOLIO PERFORMANCE
As of the April 2024 payment date, loans 30 to 60 days and 60 to 90 days in arrears represented 0.85% and 0.40% of the outstanding portfolio balance, respectively, while the share of loans more than 90 days in arrears was 0.03%. Gross cumulative defaults amounted to 4.8% of the initial portfolio balance, with cumulative recoveries of 32.9% obtained from the defaulted obligors to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis on the remaining pool of receivables and updated its base case one-year portfolio PD assumption to 7.0% from 6.9% a year ago, based on the current pool composition. Additionally, Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its default and recovery rate assumptions to 69.9% and 49.1%, respectively, at the AAA (sf) credit rating level.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the Class A and Class B Notes. As of the April 2024 payment date, credit enhancement to the Class A Notes increased to 84.8% from 62.3% at the time of the last annual review in July 2023, while credit enhancement to the Class B Notes increased to 53.8% from 39.3%.

The transaction benefits from liquidity support provided by an amortising cash reserve, available to cover senior expenses, interest payments on the Class A Notes and, as long as the mezzanine notes trigger is not breached, interest payments on the Class B Notes. The reserve amortises to a target balance of 2.0% of the Class A and Class B Notes, subject to a floor of EUR 1.85 million and, as of the April 2024 payment date, was at its floor of EUR 1.85 million.

BNP Paribas, Succursale Italia acts as the account bank for the transaction. Based on the Morningstar DBRS private credit rating of the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the notes, in accordance with its "Legal Criteria for European Structured Finance Transactions" methodology.

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 documents 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 its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to these credit ratings is "Rating CLOs Backed by Loans to European SMEs" (20 June 2024), https://dbrs.morningstar.com/research/434775.

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 investor reports provided Banca Finanziaria Internazionale S.p.A., servicer reports by Banca di Cividale, and loan-level data provided by the European DataWarehouse GmbH.

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 13 July 2023, when Morningstar DBRS upgraded its credit ratings on the Class A Notes and Class B Notes to AAA (sf) and AA (sf) from AA (high) (sf) and A (low) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Shalva Beshia.

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):
-- Probability of Default Rates Used: base case PD of 7.2% for secured loans and of 4.4% for unsecured loans, a 10% and 20% increase of the base case PD.
-- Recovery Rates Used: base case recovery rates of 49.1% at the AAA (sf) rating level, a 10% and 20% decrease in the base case recovery rates.

Morningstar DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation on the Class A and Class B Notes at AAA (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would also lead to a confirmation on the Class A and Class B Notes at AAA (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: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 17 October 2019

DBRS Ratings GmbH
Neue Mainzer Straße 7560311
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.

-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051.

-- Rating CLOs Backed by Loans to European SMEs (20 June 2024) and SME Diversity Model v2.6.1.4.,
https://dbrsmorningstar.com/research/434775.

-- Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024),
https://dbrsmorningstar.com/research/428544.

-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.

-- European RMBS Insight Methodology (25 March 2024),
https://dbrs.morningstar.com/research/430103.

-- European RMBS Insight: Italian Addendum (28 June 2024),
https://dbrs.morningstar.com/research/435263.

-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572.

-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435278.

-- 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 info-DBRS@morningstar.com.