Morningstar DBRS Assigns Credit Rating of BBB (high) (sf), Stable Trend, to Luzzatti POP NPLs 2024 S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) assigned a BBB (high) (sf) credit rating with a Stable trend to the Class A Notes issued by Luzzatti POP NPLs 2024 S.r.l. (the Issuer).

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final maturity date in May 2045.

As of the relevant selection dates, the Class A Notes were backed by a EUR 204.5 million portfolio by gross book value (GBV or the total due amount) of Italian secured and unsecured nonperforming loans (NPLs) originated by nine Italian banks (the Sellers or the Originators). Special Gardant S.p.A. and Axis S.p.A. (both, the Special Servicers) service the receivables, while Master Gardant S.p.A. acts as the Master Servicer for the transaction. Zenith Global S.p.A. will act as the backup servicer facilitator in case the agreement with the Master Servicer's is terminated.

The securitised portfolio, based on Morningstar DBRS assessment of the final dataset provided on 12 December 2024, comprises (1) secured loans, representing 51% of the GBV, approximately 93% of which benefits from first-ranking mortgages, and (2) unsecured loans, representing approximately 49% of the GBV. At the relevant selection dates, the portfolio mainly consisted of corporate borrowers (45% by GBV) and the properties securing the loans in the portfolio were mainly residential (60% by updated real estate value). The secured collateral was more concentrated in the northern regions of Italy (40% by updated real estate value) with Marche as the most represented region (26% by updated real estate value).

The transaction benefits from approximately EUR 2.8 million of collections recovered between the relevant selection dates and November 2024, which will be used as of the closing date to pay certain upfront costs and fees, while the exceeding amount will be distributed in accordance with the priority of payments on the first interest payment date (IPD).

The transaction includes a limited-recourse loan that the Sellers granted to the Issuer for an amount equal to EUR 2.3 million. The limited-recourse loan will be used at closing to fund the EUR 80,000 retention amount, the EUR 0.5 million recovery expenses cash reserve, and the EUR 1.7 million initial cash reserve amount. The target amount of the cash reserve on each IPD is sized at 3.5% of the principal outstanding on the Class A Notes. On each IPD, the cash reserve amount and the recovery expenses cash reserve will be part of the available funds for the waterfall and will be replenished in the waterfall up to the respective target amount.

Interest on the Class B Notes, which represent mezzanine debt, are composed of a floating part and a coupon. While the floating part (if positive) will be always subordinated, the coupon will be paid ahead of the principal on the Class A Notes unless certain performance-related triggers (i.e., a present value cumulative profitability ratio of less than 90%, or a cumulative collection ratio of less than 90%, or interest shortfall on the Class A Notes) are breached.

Morningstar DBRS based its credit rating on an analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the Special Servicer, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, and the transaction's legal and structural features. Morningstar DBRS' BBB (high) (sf) credit rating stress scenario assumes a haircut of approximately 19.0% to the Special Servicers' initial business plan for the portfolio, including the EUR 2.8 million of interim collections.

The final maturity date of the transaction is 31 May 2045.

CREDIT RATING RATIONALE
Morningstar DBRS based its credit rating on a review of the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- The credit quality of the loan portfolio and the ability of the Special Servicers to perform collections and resolution activities.
-- Morningstar DBRS estimated the expected collections from the loans based on the proposed business plans and used them as an input into its cash flow analysis.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the rated notes according to the terms of the transaction documents.
-- The sovereign credit rating on the Republic of Italy, which Morningstar DBRS rates BBB (high) with a Positive trend as of the date of this press release.
-- The consistency of the transaction's legal structure with Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology and the presence of legal and tax opinions to address, among others, the true sale of the assets to the Issuer.

Morningstar DBRS' credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Interest Amounts and the Initial Principal Amount Outstanding.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

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 "Rating European Nonperforming and Reperforming Loans Securitisations" (19 November 2024); https://dbrs.morningstar.com/research/443201.

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.

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 secured historical performance data provided by the Special Servicers (repossession data from Special Gardant S.p.A. for secured loans sold between 2019 and 2024) and unsecured historical performance data (historical yearly recovery curves from static pool of unsecured loans over a period of 15 years and historical decay curves for the payment plans), as well as business plans and loan tapes shared by the Special Servicers and the Sellers, respectively.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

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.

This credit rating concerns a newly issued financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

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):

-- Recovery Rates Used: Cumulative base case recovery amount of approximately EUR 70.3 million at the BBB (high) (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 BB (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 BB (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: Jorge del Pino, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 19 December 2024

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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
-- 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.