Morningstar DBRS Confirms Credit Rating on Ortles 21 S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit rating on the notes issued by Ortles 21 S.r.l. (the Issuer) at BBB (sf) and maintained the Stable 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 repayment of principal on or before the transaction's final maturity date. Morningstar DBRS does not rate the Class B or Class J Notes also issued under this transaction.

As of the 30 April 2021 and 31 August 2021 selection dates, the Class A Notes were backed by a EUR 1.83 billion portfolio by gross book value of Italian secured and unsecured nonperforming loans originated by Crédit Agricole Italia S.p.A., Crédit Agricole FriulAdria S.p.A. and Credito Valtellinese S.p.A. (together the Sellers or the Originators). DoValue S.p.A. (DoValue) and Cerved Credit Management S.p.A. (Cerved and, together, the Special Servicers) service the receivables, while DoNext S.p.A (formerly Italfondiario, the Master Servicer) acts as the master servicer for the transaction. Zenith Service S.p.A (Zenith or the Backup Servicer) has been appointed to carry out the servicing activities in case the servicing agreement with the Special Servicers is terminated.

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 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 Special Servicers' updated business plans as of December 2023 for DoValue and as of September 2023 for Cerved, received in May 2024, and the comparison with the initial collection expectations.
-- Portfolio characteristics: Loan pool composition as of March 2024 and the evolution of its core features since issuance.
-- Transaction liquidating structure: The fully sequential amortisation of the Notes according to the order of priority (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 the net present value cumulative profitability ratio are lower than 90%. These triggers were not breached on the April 2024 interest payment date. As per the March 2024 servicer report, the cumulative net collection ratio is 184.1% and the NPV cumulative profitability ratio is 127.3%.
-- Liquidity support: The transaction's amortising cash reserve providing liquidity to the structure by covering potential interest shortfall on the Class A Notes and senior fees. The cash reserve target amount is equal to 4.0% of the Class A Notes' principal outstanding balance and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from April 2024, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 169.2 million, EUR 40.0 million, and EUR 14.3 million, respectively. As of the April 2024 payment date, the balance of the Class A Notes had amortised by 50.2% since issuance, and the current aggregated transaction balance is EUR 223.5 million.

As of March 2024, the transaction was performing above the initial business plan expectations. The actual cumulative gross collections equalled EUR 203.7 million, whereas the initial business plan estimated cumulative gross collections of EUR 112.0 million for the same period. Therefore, as of March 2024, the transaction was overperforming by EUR 91.7 million (81.4%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 75.5 million at the BBB (sf) stressed scenario. Therefore, as of March 2024, the transaction was performing above Morningstar DBRS' initial stressed expectations in the BBB (sf) scenario.

In May 2024, pursuant to the requirements set out in the receivable servicing agreement, DoValue and Cerved delivered an updated portfolio business plan as of September 2023 and December 2023 respectively.

The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 182.2 results in a total of EUR 514.0 million, which is 9.6% lower than the total gross collections of EUR 568.5 million estimated in the initial business plan. Considering the positive profitability reported to date, the Servicer revised future expected collections downward considerably.

Excluding actual collections, the Special Servicers' expected future collections from April 2024 now amount to EUR 310.4 million. The updated Morningstar DBRS BBB (sf) credit rating stresses assume a haircut of 19.7% to the Special Servicers' updated business plan, considering future expected collections from April 2024.

The final maturity date of the transaction is October 2045.

Morningstar DBRS' credit rating on the applicable class address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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 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 Credit Ratings on Other Morningstar DBRS Credit Ratings of the Global Methodology for Rating Sovereign Governments at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit rating include the Issuer, DoNext S.p.A., and Zenith which comprise, in addition to the information received at issuance, the investor report as of April 2024; the semiannual servicer report as of March 2024; and the updated business plan received in May 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 these 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 7 August 2023, when Morningstar DBRS confirmed its credit rating on the Class A Notes at BBB (sf) and changed the trend from Negative to Stable.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://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 249.2 million at the BBB (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 BB (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).

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, Assistant Vice President
Credit Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Credit Rating Date: 17 December 2021

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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 (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- 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 (28 June 2024),
https://dbrs.morningstar.com/research/435263
-- European CMBS Rating and Surveillance Methodology (17 January 2024),
https://dbrs.morningstar.com/research/426818
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219
-- 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.