Morningstar DBRS Confirms Credit Rating on Andor SPV S.r.l., Changes Trend to Positive from Stable

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit rating on the Class A Notes issued by Andor SPV S.r.l. (the Issuer) at BBB (high) (sf) and changed the trend to Positive from Stable.

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 payment of principal on or before its final maturity date. Morningstar DBRS does not rate the Class B Notes nor the Class J Notes.

As of the 31 March 2023 economic effective date, the Class A Notes were backed by a EUR 1.32 billion portfolio by gross book value (GBV; the total due amount) of Italian unsecured and secured nonperforming loans originated by Intesa Sanpaolo SpA (the Seller or the Originator). The securitised portfolio was composed of (1) unsecured exposures, representing approximately 50.7% of the GBV; and (2) secured loans, representing 49.3% of the GBV, of which approximately 89.7% by GBV benefited from first-ranking mortgages. At the economic effective date, the portfolio consisted mainly of corporate borrowers (71.8% by GBV) and the properties securing the loans in the portfolio were mainly residential (51.8% by updated real estate value). The secured collateral was mainly concentrated in the northern regions of Italy (44.3% by updated real estate value) with Lombardy as the most represented region (15.2% by updated real estate value).

Intrum Italy S.p.A. (Intrum or the Special Servicer) services the receivables while Banca Finanziaria Internazionale S.p.A. acts as the Master Servicer for the transaction. No back-up servicer has been appointed.

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 September 2024, focusing on (1) a comparison between actual collections and the Special 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: The loan pool composition as of September 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). 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 had not been breached on the October 2024 interest payment date, with actual figures at 206.7% and 176.5%, respectively, according to the Special Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve and a recovery expenses 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 4.0% of the Class A Notes' principal outstanding balance and the recovery expenses cash reserve target amount is equal to EUR 2.0 million. Both reserves are fully funded.
-- The exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

TRANSACTION AND PERFORMANCE
According to the latest investor report from October 2024, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 103.5 million, EUR 40.0 million, and EUR 5.0 million, respectively. As of the October 2024 payment date, the balance of the Class A Notes had amortised by 50.3% since issuance and the aggregated transaction balance was EUR 148.5 million.

As of September 2024, the transaction was performing above the Special Servicer's business plan expectations. The actual cumulative gross collections from the cut-off date equalled EUR 126.7 million whereas the Special Servicer's initial business plan estimated cumulative gross collections of EUR 60.9 million for the same period. Therefore, as of September 2024, the transaction was overperforming by EUR 65.8 million (+107.9%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 46.6 million in the BBB (high) (sf) stressed scenario. Therefore, as of September 2024, the transaction was performing above Morningstar DBRS' initial stressed expectations.

Pursuant to the requirements set forth in the servicing agreement, the Special Servicer is expected to provide the first updated portfolio business plan by February 2025.

The initial business plan assumes total cumulative gross collections from the cut-off date of EUR 375.9 million. Excluding actual collections, the Special Servicer's expected future collections from October 2024 are EUR 315.0 million.

Considering the outperformance registered since issuance and the increased subordination, the Class A notes would pass a higher credit rating stress scenario; however, Morningstar DBRS does not yet consider the positive performance trend to be sustainable and believes that higher credit ratings would at this time not be commensurate with the risk associated with the transaction given (1) the current absence of an updated business plan to analyse the Special Servicer's updated recovery expectations and the material mismatch between actual collections and the initial business plan expectations as of September 2024 and (2) the exposure to the transaction account bank and the downgrade provisions outlined in the transaction documents.

The final maturity date of the transaction is in April 2043.

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) 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" (19 November 2024), https://dbrs.morningstar.com/research/443204.

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, Intrum, and Banca Finint, which comprise, in addition to the information received at issuance, the investor report as of October 2024, and the quarterly servicer report as of September 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 18 December 2023 when Morningstar DBRS assigned a BBB (high) (sf) credit rating with Stable trend to the Class A Notes.

The lead analyst responsibilities for this transaction have been transferred to Pablo Iturriaga.

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):
-- 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 BBB (high) (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 BBB (high) (sf).

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

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: Christian Aufsatz, Managing Director
Initial Rating Date: 18 December 2023

DBRS Ratings GmbH, Sucursal en España
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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 (19 November 2024), https://dbrs.morningstar.com/research/443201
-- Master European Structured Finance Surveillance Methodology (19 November 2024), https://dbrs.morningstar.com/research/443204
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583
-- European RMBS Insight Methodology (3 December 2024), https://dbrs.morningstar.com/research/444100
-- 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
-- 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.