Morningstar DBRS Confirms Credit Rating on Siena NPL 2018 S.r.l. With Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit rating on the Class A notes issued by Siena NPL 2018 S.r.l. (the Issuer) at BB (high) (sf) with a Stable trend.

The transaction represents the issuance of Class A, Class B, and Class J notes as well as a Class X detachable coupon (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 its final maturity date. Morningstar DBRS does not rate the Class B notes, the Class J notes, or the Class X detachable coupon.

At issuance, the notes were backed by a EUR 24.1 billion portfolio by gross book value (GBV) consisting of a mixed pool of Italian nonperforming residential, commercial, and unsecured loans originated by Banca Monte dei Paschi di Siena S.p.A., MPS Capital Services Banca per le Imprese S.p.A., and Monte dei Paschi di Siena Leasing. The portfolio was composed of secured commercial and residential loans (57.8% of total GBV) and unsecured loans (42.2% of total GBV) mostly due by Italian small and medium-sized enterprises (81.0% of total GBV).

The receivables are serviced by Special Gardant S.p.A. (Special Gardant; formerly Credito Fondiario S.p.A.), doValue S.p.A. (doValue; formerly Italfondiario S.p.A.), Cerved Credit Management S.p.A. (Cerved; formerly Juliet S.p.A), and Prelios Credit Servicing S.p.A. (Prelios; collectively, the special servicers). Master Gardant S.p.A. (formerly Credito Fondiario S.p.A.) also operates as the master servicer in the transaction.

CREDIT RATING RATIONALE
The credit rating confirmation follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of June 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: The loan pool composition as of June 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).
-- Performance ratios and underperformance events: As per the most recent July 2024 payment report, all servicers have breached their special servicer subordination fee event and 10% of their fees above the base fee are subordinated in the priority of payments whereas the mezzanine notes (interest) trigger has not occurred.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure and covering potential interest shortfall on the Class A notes. The cash reserve target amount is equal to 3.5% of the Class A notes' principal outstanding and is currently fully funded.
-- Interest rate risk: The transaction is exposed to interest rate risk in a rising interest-rate environment because of the 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 July 2024, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 836.9 million, EUR 901.2 million, and EUR 565.0 million, respectively. As of the July 2024 payment date, the balance of the Class A Notes had amortised by 71.3% since issuance and the aggregated transaction balance was EUR 2,303.2 million.

As of June 2024, the transaction was performing below the servicer's business plan expectations. The actual cumulative gross collections from the transfer date (20 December 2017) equalled EUR 3,537.3 million whereas the servicer's initial business plan estimated cumulative gross collections of EUR 4,781.9 million for the same period. Therefore, as of June 2024, the transaction was underperforming by EUR 1,244.6 million (-26.0%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 3,886.9 million in the BBB (sf) stressed scenario. Therefore, as of June 2024, the transaction was performing below Morningstar DBRS' initial stressed expectations.

The business plan assumes total cumulative gross collections from the transfer date of EUR 6,247.8 million. Excluding actual collections, the special servicers' expected future collections from July 2024 are now EUR 1,465.9 million. The updated Morningstar DBRS BB (high) (sf) credit rating stress assumes a haircut of 13.2%, including actual collections from the transfer date.

The final maturity date of the transaction is in January 2047.

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, 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 (13 August 2024), 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, Special Gardant, doValue, Cerved, Prelios, and Banca Finanziaria Internazionale S.p.A. which comprise, in addition to the information received at issuance, the business plan; the investor report as of July 2024; and the quarterly and monthly servicer reports as of 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 impact 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 29 September 2023, when Morningstar DBRS confirmed its credit rating on the Class A notes at BB (high) (sf) with a 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 downgrade of the Class A notes to B (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).

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: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 10 May 2018

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Tel. +34 (91) 903 6500

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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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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 and Reperforming Loans Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439575
-- 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
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583
-- European RMBS Insight Methodology (18 September 2024),
https://dbrs.morningstar.com/research/439573
-- 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 Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024), https://dbrs.morningstar.com/research/439043
-- 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.