Morningstar DBRS Takes Credit Rating Actions on 4Mori Sardegna S.r.l.

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes issued by 4Mori Sardegna S.r.l. (the Issuer):

-- Class A confirmed at B (sf)
-- Class B downgraded to CC (sf) from CCC (sf)

Morningstar DBRS also changed the trend on the Class A notes to Stable from Negative and removed the Negative trend from the Class B notes' credit rating.

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. The credit rating on the Class B notes addresses the ultimate payment of interest and principal on or before the legal final maturity date. Morningstar DBRS does not rate the Class J notes.

At issuance, the Notes were backed by a EUR 1.04 billion portfolio by gross book value (GBV) consisting of secured and unsecured Italian nonperforming loans (NPLs) originated by Banco di Sardegna S.p.A.

The majority of loans in the portfolio defaulted between 2008 and 2017 and are in various stages of resolution. As of the cut-off date, 53.4% of the pool by GBV was secured. According to the information provided by the servicer in September 2024, 44.4% of the pool by GBV was secured. At closing, the loan pool mainly comprised corporate borrowers (76.9% by GBV), which accounted for approximately 74.8% of the GBV as of September 2024.

The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios or the servicer) while Banca Finint S.p.A. operates as backup servicer.

CREDIT RATING RATIONALE
The credit rating actions follow a review of the transaction and are 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.
-- Updated business plan: The servicer's updated business plan as of June 2024, received in November 2024, and the comparison with the initial collection 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 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 collection ratio or present value cumulative profitability ratio is lower than 90%. These triggers have been breached since the January 2021 interest payment date (IPD), with the actual figures at 60.7% and 108.0% as of the July 2024 IPD, respectively, according to the servicer.
-- Liquidity support: The transaction benefits from an 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 4.9% of the sum of the Class A and Class B 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 due to underhedging of the rated notes, which have amortised at a slower pace than the cap notional schedule.

According to the investor report from July 2024, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 91.2 million, EUR 13.0 million, and EUR 8.0 million, respectively. As of the July 2024 payment date, the balance of the Class A notes had amortised by 60.7% since issuance and the current aggregated transaction balance was EUR 112.2 million.

As of June 2024, the transaction was performing below the servicer's business plan expectations. The actual cumulative gross collections equalled EUR 206.9 million, whereas the servicer's initial business plan estimated cumulative gross collections of EUR 340.2 million for the same period. Therefore, as of June 2024, the transaction was underperforming by EUR 133.3 million ( 39.2%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 260.1 million at the BBB (low) (sf) stressed scenario and EUR 289.2 million at the B (sf) stressed scenario. Therefore, as of June 2024, the transaction was performing below Morningstar DBRS' initial stressed scenarios.

Pursuant to the requirements set out in the receivable servicing agreement, in November 2024, the servicer delivered an updated portfolio business plan. The updated portfolio business plan combined with the actual cumulative gross collections of EUR 206.9 million as of June 2024 resulted in a total of EUR 356.7 million, which is 11.1% lower than the total gross disposition proceeds of EUR 401.0 million estimated in the initial business plan and is expected to be realised over a longer period of time.

The final maturity date of the transaction is in January 2037.

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 surveillance section of 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 these credit ratings include the Issuer, Prelios, and Banca Finanziaria Internazionale S.p.A. which comprise, in addition to the information received at issuance, the investor report as of July 2024; the semiannual servicer report as of June 2024; and the quarterly loan-by-loan 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 ratings, 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 these credit ratings 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 23 January 2023, when Morningstar DBRS downgraded its credit rating on the Class A to B (sf) from BB (sf) and confirmed its credit rating on the Class B notes at CCC (sf). Morningstar DBRS also maintained the Negative trend on the Class A notes and changed the trend on the Class B notes to Negative from Stable.

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 downgrade of the Class A notes to CCC (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 CCC (sf).
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a downgrade of the Class B notes to below CCC (sf).
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a downgrade of the Class B notes to below CCC (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.

These credit ratings are 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: 22 June 2018

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27 28046 Madrid, Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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.