Morningstar DBRS Confirms Credit Rating on Titan Financing S.à r.l.

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit rating on the Class A notes issued by Titan Financing S.à r.l. (the Issuer) at BBB (sf) with a Stable trend.

The transaction represents the issuance of Class A and Class Z notes (collectively, the Notes). The credit rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal. Morningstar DBRS does not rate the Class Z notes.

The Notes are collateralised by a pool of Cypriot nonperforming loans (NPLs) initially originated by Bank of Cyprus Public Limited Company (BoC) and real estate owned properties (REOs). As of August 2022, the total exposure of the portfolio was approximately EUR 1.0 billion. Most of the portfolio relates to NPLs secured over Cypriot real estate collateral, with an aggregated open market value (OMV) of EUR 472.9 million (including only first-lien mortgages), as well as REOs with an OMV of EUR 146.5 million.

BoC sold the portfolio to B4 Galium Holding S.à r.l. (the Sponsor). In January 2023, servicing for the portfolio transferred to Themis Portfolio Management Limited (the Servicer), an affiliate of the Sponsor and the Cypriot credit acquiring company (CyCAC; Themis Portfolio (H3) Management Holdings Limited), from BoC.

CREDIT RATING RATIONALE
The credit rating confirmation follows a review of the transaction and is based on the following analytical considerations:
(1) Transaction performance: An assessment of portfolio recoveries as of 31 August 2024, focusing on the following: (1) a comparison between actual collections and the initial business plan forecast; (2) the collection performance observed over recent months; and (3) a comparison between the current performance and Morningstar DBRS' expectations.
(2) Updated business plan: The Servicer's updated business plan as of September 2023 and a comparison with the initial collection expectations.
(3) Portfolio characteristics: The loan pool composition as of August 2024 and the evolution of its core features since issuance.
(4) Cash sweep event: If a cash sweep event occurs, the Class A notes benefit from sequential amortisation where the Class Z notes will begin to amortise only following the full repayment of the Class A notes. If no cash sweep event occurs, then only 80% of the available funds will be used to repay the Class A notes and the rest will be used to pay interest, and principal on the Class Z notes. As of the September 2024 interest payment date (IPD), no cash sweep event had occurred; therefore, 20% of the Issuer's available funds remaining after payment of the more senior items in the waterfall were applied towards interest and principal of the junior notes.
-- According to the transaction documents, a cash sweep event will occur in the case of: (A) an event of default, (B) a servicer termination event, (C) the principal amount outstanding of the Class A notes being greater than the target note amount set out in the transaction documents in respect of such IPD, (D) the principal amount outstanding of the Class Z Notes being less than 10% of the principal amount outstanding of the Class Z Notes on the issuance date; or (E) the aggregate value of the properties that the CyCAC continues to own being 10% or less than the aggregate value of the properties that the CyCAC owned at issuance. T
The target amortisation of the Class A notes in the cash sweep schedule, is equal to EUR 25.2 million and EUR 51.2 million for the December 2024 and March 2025 IPDs respectively. As of the latest IPD the average quarterly amortisation of the Class A notes was equal to EUR 13.3 million, therefore we expect that a cash sweep event could occur after the next two IPDs.
(5) Liquidity support: The transaction benefits from an amortising 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 5.75% of the Class A notes' principal outstanding balance and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from September 2024, the outstanding principal amounts of the Class A and Class Z notes were EUR 172.0 million and EUR 735.7 million, respectively. As of the September 2024 payment date, the balance of the Class A notes had amortised by 35.1% since issuance and the current aggregated transaction balance was EUR 907.7 million.

As of August 2024, the transaction was performing below the initial business plan's expectations. The actual cumulative collections from November 2022 to August 2024 equaled EUR 128.6 million whereas the initial business plan estimated cumulative collections of EUR 179.6 million for the same period. Therefore, as of August 2024, actual collections were 28.4% lower than initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections as of August 2024 of EUR 57.3 million in the BBB (sf) stressed scenario. Therefore, as of August 2024, the transaction was performing above Morningstar DBRS' initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement in October 2024, the Servicer delivered an updated portfolio business plan as of September 2023. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 52.9 million from November 2022 to September 2023, resulted in a total of EUR 458.7 million, which is 3.6% lower than the total gross collections of EUR 476.0 million estimated in the initial business plan for the same period.

Excluding actual collections, the Servicer's expected future collections from October 2024 are EUR 332.7 million. The updated Morningstar DBRS BBB (sf) credit rating stress assumes a haircut of 31.3% to the Servicer's updated business plan, considering future expected collections.

The final maturity date of the transaction is 31 March 2067.

Morningstar DBRS' credit rating addresses 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.

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 and the Servicer which comprise, in addition to the information received at issuance, the investor report as of September 2024, the updated business plan as of September 2023, and the quarterly servicer report as of August 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 17 November 2023, when Morningstar DBRS confirmed its credit rating on the Class A notes at BBB (sf) with a Stable trend.

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 228.6 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 BBB (low) (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 BB (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
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 18 November 2022

DBRS Ratings GmbH
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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
-- Common RMBS Rating Methodology (18 October 2024),
https://dbrs.morningstar.com/research/441432
-- 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.