Morningstar DBRS Upgrades Credit Rating on Buonconsiglio 4 S.r.l., Maintains Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit rating on the Class A notes issued by Buonconsiglio 4 S.r.l. (the Issuer) to BBB (high) (sf) from BBB (sf) and maintained the Stable trend.

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. Morningstar DBRS does not rate the Class B or Class J notes.

As of the 30 July 2021 cut-off date, the Notes were backed by a EUR 578.7 million portfolio by gross book value (GBV) of Italian secured and unsecured nonperforming loans originated by 29 co-operative banks belonging to the Cassa Centrale Banca group and nine other Italian private banks.

The majority of the loans in the portfolio defaulted between 2012 and 2020 and are in various stages of resolution. As of the cut-off date, approximately 60.3% of the pool by GBV was secured. According to the latest information provided by the servicer in December 2024, 55.3% of the pool by GBV was secured. At closing, the loan pool mainly comprised corporate borrowers (approximately 73% by GBV).

The receivables are serviced by Prelios Credit Servicing S.p.A. (Prelios or the Servicer) while Banca Finanziaria Internazionale S.p.A. (Banca Finint) has been appointed to carry out the backup servicing activities.

CREDIT RATING RATIONALE
The credit rating upgrade follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 31 December 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 December 2024, received in March 2025, and a comparison with the initial collection expectations.
-- Portfolio characteristics: The loan pool composition as of December 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 net collection ratio or the net present value cumulative profitability ratio are lower than 90%. These triggers were not breached on the January 2024 interest payment date, with actual figures at 220.4% and 134.8%, respectively, according to the 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% of the Class A notes' principal outstanding balance and the recovery expenses cash reserve target amounts to EUR 400,000, both fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2025, the outstanding principal amounts of the Class A, Class B, and Class J notes were EUR 58.1 million, EUR 16.5 million, and EUR 5.9 million, respectively. As of the January 2025 payment date, the balance of the Class A notes had amortised by 50.6% since issuance, and the current aggregated transaction balance was EUR 80.5 million.

As of December 2024, the transaction was performing above the Servicer's business plan expectations. The actual cumulative gross collections equalled EUR 86.6 million whereas the Servicer's initial business plan estimated cumulative gross collections of EUR 41.1 million for the same period. Therefore, as of December 2024, the transaction was overperforming by EUR 45.5 million (110.5%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 27.2 million at the BBB (sf) stressed scenario. Therefore, as of December 2024, the transaction was performing above Morningstar DBRS' initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement in March 2025, the Servicer delivered an updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 86.6 million as of December 2024, results in a total of EUR 188.7 million, which is 1.2% lower than the total gross disposition proceeds of EUR 191.0 million estimated in the initial business plan. Given the outperformance and profitability to date, the servicer has revised its expectations for future collections downwards. The Servicer's expected future collections from January 2025 amount to EUR 102.1 million. The updated Morningstar DBRS BBB (high) (sf) rating stress assumes a haircut of 15.0% to the Servicer's updated business plan, considering future expected collections.

The final maturity date of the transaction is 31 January 2042.

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. 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, or 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" (4 February 2025), https://dbrs.morningstar.com/research/447080.

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 this credit rating include the Issuer, Prelios, and Banca Finint which comprise, in addition to the information received at issuance, the investor report as of January 2025; the updated business plan as of December 2024; the semi-annual servicer report as of December 2024; and the loan-by-loan report as of December 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 impact 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 5 April 2024, when Morningstar DBRS confirmed the credit rating on the Class A notes and changed the trend to Stable from Negative.

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 86.8 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 on 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 on the Class A notes to B (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: Pablo Iturriaga, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 14 December 2021

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Tel. +34 (91) 903 6500

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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
-- European RMBS Insight Methodology (28 February 2025),
https://dbrs.morningstar.com/research/449129
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024),
https://dbrs.morningstar.com/research/439583
-- European CMBS Rating and Surveillance Methodology (4 March 2025),
https://dbrs.morningstar.com/research/449278
-- 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.