Morningstar DBRS Places Credit Rating on Buonconsiglio 3 S.r.l. Under Review With Negative Implications

DBRS Ratings GmbH (Morningstar DBRS) placed its credit rating on the Class A notes issued by Buonconsiglio 3 S.r.l. Under Review with Negative Implications.

In this transaction, Class A, Class B, and Class J notes (collectively, the Notes) were issued. 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 of January 2041. Morningstar DBRS does not rate the Class B or the Class J notes.

At issuance, the Notes were backed by a EUR 679.1 million portfolio by gross book value consisting of a mixed portfolio of Italian secured and unsecured nonperforming loans originated by Cassa Centrale Banca Credito Cooperativo Italiano S.p.A., 31 co-operative banks belonging to the Cassa Centrale group, and six other Italian private banks.

The receivables are serviced by Guber Banca SpA (Guber or the Servicer) while Zenith Service S.p.A. (the Master Servicer) was appointed to carry out the master servicing activities. Guber will also act as backup master servicer in case of Zenith's termination as Master 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 June 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.
-- Portfolio characteristics: Loan pool composition as of June 2024 and the evolution of its core features since issuance.
-- Transaction liquidating structure: The order of priority's 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 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%. The ratios were at 110.0% and 106.7% as of the July 2024 interest payment date (IPD), respectively, according to the Servicer.
-- Liquidity support: The transaction's amortising cash reserve providing liquidity to the structure 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 principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the July 2024 investor report, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 83.3 million, EUR 21.0 million, and EUR 4.5 million, respectively. As of the July 2024 IPD, the balance of the Class A notes had amortised by 45.9% since issuance and the aggregated transaction balance was EUR 108.8 million.

As of June 2024, the transaction was performing above the Servicer's initial business plan expectations. The actual cumulative gross collections equalled EUR 102.1 million whereas the initial business plan estimated cumulative gross collections of EUR 92.0 million for the same period. Therefore, as of June 2024, the transaction was overperforming by EUR 10.1 million (10.9%) compared with the initial business plan expectations. Compared with one year ago, the gross cumulative collections ratio has decreased by 30.7%. As of June 2023, the transaction was overperforming the initial business plan expectations by 41.6%.

At issuance, Morningstar DBRS estimated cumulative gross collections for of EUR 71.0 million as of June 2024, in the BBB (sf) stressed scenario. Therefore, as of the latest collection date, the transaction was performing above Morningstar DBRS' initial stressed expectations in the BBB (sf) scenario.

According to the provisions in the transaction documents, the Servicer has undertaken to send, on an annual basis, an updated business plan to the relevant counterparties reflecting the actual data of the two immediately preceding semiannual servicer reports. Morningstar DBRS was informed that the release of the updated business plan for 2024 is still pending. Morningstar DBRS received the last updated business plan in September 2023. The Servicer's updated portfolio business plan, combined with the actual cumulative gross collections of EUR 53.4 million as of 31 December 2022, resulted in a total of EUR 232.3 million in expected gross collections, which is 5.1% lower than the total gross collections of EUR 244.7 million estimated in the initial business plan. Based on the data that Morningstar DBRS received as of June 2024, further reductions can be expected, considering the performance on closed positions.

Morningstar DBRS' decision to place the credit rating on the Class A notes Under Review with Negative Implications, also addresses the continued leakage of available funds to the payment of class B interests, which further reduces the amount of collections allocated to the class A notes repayment.

The final maturity date of the transaction is in January 2041.

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 (13 August, 2024) 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.

Morningstar DBRS is undertaking a review and will remove the credit rating from this status as soon as it is appropriate.

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/436000.

The sources of data and information used for this credit rating include the investor report as of July 2024; the semiannual servicer report as of June 2024; and the updated business plan delivered in September 2023 as of December 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 24 October 2023, when Morningstar DBRS confirmed its credit ratings on the Class A notes at BBB (sf) with a Negative trend.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

This credit rating is Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 14 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 and Reperforming Loans Securitisations (18 October 2024),
https://dbrs.morningstar.com/research/441431
-- 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 (30 September 2024),
https://dbrs.morningstar.com/research/440245
-- 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 (24 September 2024), https://dbrs.morningstar.com/research/439913
-- 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/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.