Morningstar DBRS Downgrades Credit Rating on Belvedere SPV S.r.l., Removes Negative Trend

DBRS Ratings GmbH (Morningstar DBRS) downgraded its credit rating on the Class A notes issued by Belvedere SPV S.r.l. (the Issuer) to CC (sf) from CCC (sf) and removed the Negative trend on the credit rating.

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. Morningstar DBRS does not rate the Class B or Class J notes.

At issuance, the notes were backed by a EUR 2.5 billion portfolio by gross book value (GBV) consisting of a mixed pool of Italian nonperforming loans sold by Gemini SPV S.r.l., Sirius SPV S.r.l., Antares SPV S.r.l., SPV Project 1702 S.r.l., and Adige SPV S.r.l. to the Issuer. Bayview Global Opportunities Fund S.C.S. SICAV-RAIF operates as sponsor and indemnity provider in the transaction. As of May 2024, the portfolio's GBV totalled EUR 2.1 billion.

The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios) and Bayview Italia 106 S.p.A. (Bayview; formerly Bayview Italia S.r.l.), which act as the special servicers. Prelios also operates as the master servicer in the transaction 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 action follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of May 2024, focusing on (1) a comparison between actual collections and the special 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.
-- Portfolio characteristics: Loan pool composition as of May 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 are fully subordinated to principal payments on the Class A notes.
-- Performance ratios and underperformance events: First-level and second-level underperformance events may occur if the cumulative collection ratio (CCR) and the present value cumulative profitability ratio (PVCPR) are both lower than 90% and 75%, respectively. These events had not occurred on the June 2024 interest payment date, and the actual figures were a CCR of 27.0% and a PVCPR of 108.5% for Prelios and a CCR of 58.5% and a PVCPR of 91.9% for Bayview, according to the latest information from the special servicers.
-- 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 costs. The cash reserve target amount is equal to 4% of the Class A notes' principal outstanding and is currently fully funded. However, Morningstar DBRS notes that, in the absence of a trigger notice, the amortising mechanism for the reserve defined as the Class J Notes Early Amortisation Amount creates a leakage of funds towards the junior notes.
-- Interest rate risk: The transaction is exposed to high interest rate risk in a rising interest rate environment because of the material underhedging of the Class A notes, which is a result of the underperformance in terms of collections.

TRANSACTION AND PERFORMANCE
According to the latest investor report from June 2024, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 217.9 million, EUR 70.0 million, and EUR 95.0 million, respectively. As of the June 2024 payment date, the balance of the Class A notes had amortised by 31.9% since issuance, and the current aggregated transaction balance was EUR 382.9 million.

As of May 2024, the transaction was performing below the special servicers' business plan expectations. The actual cumulative gross collections equalled EUR 204.2 million, whereas the special servicers' initial business plan estimated cumulative gross collections of EUR 429.8 million for the same period. Therefore, as of May 2024, the transaction was underperforming by EUR 225.6 million (52.5%) compared with the initial business plan expectations. By special servicer, the performance split would be as follows: Prelios is underperforming by EUR 135.9 million (-70.9%) compared with its initial expectations and Bayview is underperforming by EUR 89.7 million (-37.6%) compared with its initial expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 286.9 million at the BBB (low) (sf) stressed scenario. Therefore, as of May 2024, the transaction was performing below Morningstar DBRS' initial stressed expectations.

In November 2022, Bayview provided Morningstar DBRS with a revised business plan as of December 2021. In this updated business plan, Bayview assumed lower recoveries compared with initial expectations. The total cumulative gross collections from the updated business plan account for EUR 242.0 million, which is 20.7% lower than the EUR 305.1 million expected in the initial business plan. Morningstar DBRS notes that also based on the updated business plan, the portfolio has underperformed since 2022. Prelios provided the required updated business plan to the monitoring agent, but it has not been released yet as the monitoring agent's approval and the authorisation for release have not been received so far.

The special servicers' total expected collections, considering the latest officially approved business plans (the executed business plan and the 2022 updated business plan with regard to the pool managed by Prelios and Bayview, respectively), are now EUR 470.5 million. Excluding actual collections, the special servicers' expected future collections from June 2024 account for EUR 69.5 million, which is less than the current aggregated outstanding balance of the Class A notes. In Morningstar DBRS' CCC (sf) scenario, the special servicers' updated forecast was only adjusted in terms of the actual collections to date and the timing of future expected collections. Considering senior costs and interest due on the notes, Morningstar DBRS believes the full repayment of the Class A principal is increasingly unlikely, but considering the transaction structure, a payment default on the bonds would likely only occur a few years from now.

The final maturity date of the transaction is in December 2038.

Morningstar DBRS' credit ratings on the applicable classes 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 Factors in Credit Ratings" at https://dbrs.morningstar.com/research/437781.

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" (6 August 2024), https://dbrs.morningstar.com/research/437540.

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 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 this credit rating include the Issuer, Bayview, Prelios and Banca Finint, which comprise, in addition to the information received at issuance, the investor report as of June 2024; the semiannual special servicer reports as of May 2024; the loan-by-loan reports as of May 2024; Bayview's updated business plan as of December 2021 delivered in November 2022; and Prelios' draft updated business plans as of December 2020 and December 2021, uploaded in the virtual data room in March 2021 and March 2022.

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 10 September 2023, when Morningstar DBRS downgraded its credit rating on the Class A notes to CCC (sf) from CCC (high) (sf) and maintained the Negative trend on the credit rating.

The lead analyst responsibilities for this transaction have been transferred to Sijia Aulenbacher.

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 ratings, 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 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).

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: Sijia Aulenbacher, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 21 December 2018

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 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.

-- Rating European Nonperforming and Reperforming Loans Securitisations (6 August 2024), https://dbrs.morningstar.com/research/437550
-- Legal Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435165
-- Master European Structured Finance Surveillance Methodology (6 August 2024), https://dbrs.morningstar.com/research/437540
-- 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 (22 August 2024), https://dbrs.morningstar.com/research/438224
-- Operational Risk Assessment for European Structured Finance Servicers (6 August 2024), https://dbrs.morningstar.com/research/437543
-- 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 Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781

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.