Morningstar DBRS Downgrades Credit Rating on Leviticus SPV S.r.l. to CCC (high) (sf) from B (sf), Negative Trend

DBRS Ratings GmbH (Morningstar DBRS) downgraded its credit rating on the Class A notes issued by Leviticus SPV S.r.l. (the Issuer) to CCC (high) (sf) from B (sf). The trend remains Negative.

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 or the Class J notes.

At issuance, the Notes were backed by a EUR 7.4 billion portfolio by gross book value, consisting of secured and unsecured Italian nonperforming loans originated by Banco BPM SpA.

Gardant Liberty Servicing S.p.A. (Gardant or the servicer) services the receivables while Zenith Service S.p.A. operates as the backup servicer.

CREDIT RATING RATIONALE
The credit rating downgrade follows Morningstar DBRS' review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of 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 the comparison with the initial collection expectations.
-- Transaction liquidating structure: The order of priority, which 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 (CCR) or net present value cumulative profitability ratio (NPV ratio) is lower than 70%. These triggers were not breached on the January 2025 interest payment date (IPD). The actual figures for the CCR and NPV ratio were at 70.7% and 94.5% as of the January 2025 IPD, respectively, according to the servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure and covering potential interest shortfall on the Class A notes and senior fees. The cash reserve target amount is equal to 4.0% of the sum of the Class A and Class B notes' principal outstanding balance and the recovery expenses cash reserve target amounts to EUR 500,000, both fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2025, the outstanding principal amounts of the Notes were EUR 378.6 million, EUR 221.5 million, and EUR 248.8 million, respectively. As of January 2025, the balance of the Class A notes had amortised by 73.7% since issuance, and the current aggregated transaction balance was EUR 849.0 million.

As of December 2024, the transaction was performing below the servicer's business plan expectations. The actual cumulative gross collections equalled EUR 1,493.8 million, whereas the servicer's initial business plan estimated cumulative gross collections of EUR 2,157.6 million for the same period. Therefore, as of December 2024, the transaction was underperforming by EUR 663.8 million (-30.8%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 1,503.1 million at the BBB (sf) stressed scenario. Therefore, as of December 2024, the transaction was performing below Morningstar DBRS' initial stressed scenarios.

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 1,493.8 million as of December 2024, resulted in a total of EUR 1,997.8 million. This is 18.3% lower than the total gross disposition proceeds of EUR 2,446.4 million estimated in the initial business plan and collections are expected to be realised over a longer period of. Excluding actual collections, the servicer's expected future collections from January 2025 equalled EUR 504.0 million. The updated Morningstar DBRS CCC (high) (sf) credit rating stress assumes a haircut of 4.5% to the servicer's updated business plan, considering future expected collections.

Considering the persistent underperformance and the continual Class B interest payments, the rated bonds now face a much higher credit risk to fulfil their financial obligations. If the Class B interest subordination event cannot be triggered, it is likely that the Class A notes will not be redeemed in full. Therefore, Morningstar DBRS downgraded the credit rating on the Class A notes to CCC (high) (sf) with a Negative trend.

The transaction's final maturity date is 31 July 2040.

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, 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 at https://dbrs.morningstar.com/research/437781 (13 August 2024).

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 ratings 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, Gardant, and Master Gardant S.p.A., which comprise, in addition to the information received at issuance, the updated business plan from the servicer received in March 2025, the investor report as of January 2025, the semiannual servicer report as of December 2024, and the quarterly 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 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 19 April 2024, when Morningstar DBRS downgraded its credit rating on the Class A notes to B (sf) from BB (low) (sf) with a Negative 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 1,975.1 million (EUR 481.3 million from January 2025 on) at the CCC (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 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 A notes to below CCC (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: Sijia Aulenbacher, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 6 February 2019

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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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
-- Master European Structured Finance Surveillance Methodology (4 February 2025), https://dbrs.morningstar.com/research/447080
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583
-- European RMBS Insight Methodology (28 February 2025), https://dbrs.morningstar.com/research/449129
-- 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.