Morningstar DBRS Confirms Credit Rating on Titan SPV S.r.l., Changes Trend to Positive from Stable

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit rating on the Class A Notes issued by Titan SPV S.r.l. (the Issuer) at BBB (high) (sf) and changed the Trend to Positive from Stable.

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 transaction final maturity date. Morningstar DBRS does not rate the Class B or Class J Notes.

At issuance, the Notes were backed by a EUR 335.4 million portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming leases originated by Alba Leasing S.p.A., Banco BPM S.p.A., and Release S.p.A. As of March 2024, the securitised portfolio had a total GBV of EUR 232.4 million and was mostly composed of secured leases, representing approximately 89% of the GBV.

The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios or the Servicer) while Banca Finanziaria Internazionale S.p.A. (Banca Finint) has been appointed as backup servicer for Prelios.

CREDIT RATING RATIONALE
The confirmation follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of March 2024, 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.
-- Updated business plan: The Servicer's updated business plan as of September 2023, delivered in January 2024, and a comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of March 2024 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 begin to 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 the net present value cumulative profitability ratio is lower than 90%. As of the January 2024 interest payment date, these triggers had not been breached with actual figures at 148.94% and 119.79%, respectively, according to the Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve and a recovery expenses 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 5.0% of the Class A Notes' principal outstanding balance and the recovery expenses cash reserve target amount is equal to the LeaseCo costs for the following two collection periods based on the updated business plan delivered by the servicer annually and its target amount is currently EUR 5.3 million. Both reserves are currently fully funded.
-- The exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2024, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 34.1 million, EUR 15.0 million, and EUR 10.1 million, respectively. As of the January 2024 payment date, the balance of the Class A Notes had amortised by 62.4% since issuance and the aggregated transaction balance was EUR 59.1 million.

As of December 2023, the transaction was performing above the Servicer's business plan expectations. The actual cumulative gross collections equalled EUR 84.9 million, whereas the Servicer's initial business plan estimated
cumulative gross collections of EUR 67.4 million for the same period. Therefore, as of December 2023, the transaction was overperforming by EUR 17.5 million (26.0%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative net collections (before servicing fees) for the same period of EUR 29.9 million in the BBB (sf) stressed scenario. The actual net collections (before servicing fees) amount to EUR 70.1 million; 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 January 2024, the Servicer delivered an updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 75.8 million as of September 2023, resulted in a total of EUR 169.7 million, which is 8.8% lower than the total gross disposition proceeds of EUR 186.1 million estimated in the initial business plan. Considering the outperformance compared with the initial business plan, the Servicer revised its expectations for future collections downwards. Excluding actual net collections (before servicing fees), the Servicer's expected future net collections (before servicing fees) from January 2024 amount to EUR 64.7 million. The updated Morningstar DBRS BBB (high) (sf) credit rating stresses assume a haircut of 21.4% to the Servicer's updated business plan, considering future expected net collections (before servicing fees) from January 2024.

The Class A notes would pass higher credit rating stress scenario; however, Morningstar DBRS believes that higher credit ratings would not be commensurate with the risk associated with the transaction, given (1) the deterioration of the remaining assets, (2) the increased concentration of the portfolio, (3) the reduced liquidity support as the current cash reserve currently covers senior costs and interest for only one semiannual payment date, and (4) the exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

The final maturity date of the transaction is January 2041.

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 Amounts and the Principal Amount Outstanding.

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 the 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 Morningstar DBRS 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, Prelios, and Banca Finint, which comprise, in addition to the information received at issuance, the investor report as of January 2024; the semi-annual Servicer report as of December 2023; the quarterly Servicer report as of March 2024; and the updated business plan received in June 2024.

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 14 July 2023, when Morningstar DBRS upgraded its credit rating on the Class A Notes to BBB (high) (sf) from BBB (sf) and maintained the Stable Trend.

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):

-- 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 BBB (high) (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 BBB (high) (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: Pablo Iturriaga, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 28 December 2020

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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
-- 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: Italian Addendum (28 June 2024),
https://dbrs.morningstar.com/research/435263
-- 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 (28 June 2024), https://dbrs.morningstar.com/research/435260
-- 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.