Morningstar DBRS Confirms Sirio NPL S.r.l.'s Class A Notes at A (sf), Changes Trend to Stable From Positive

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

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 in September 2038. Morningstar DBRS does not rate the Class B or Class J Notes.

As of the 31 December 2019 cut-off date, the Notes were backed by a EUR 1.23 billion portfolio consisting of secured and unsecured Italian nonperforming loans (NPLs) originated by Unione di Banche Italiane S.p.A.

The receivables are serviced by Prelios Credit Servicing S.p.A. (the Servicer) while Banca Finanziaria Internazionale S.p.A. (Banca Finint) was appointed as backup servicer.

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 February 2025, 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 November 2024, received in March 2025, and the comparison with the initial collection expectations.
-- Portfolio characteristics: Loan pool composition as of February 2025 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 will become subordinated to principal payments on the Class A Notes if either the cumulative net collection ratio or the net present value cumulative profitability ratio is lower than 90%. These triggers were not breached on the March 2025 interest payment date, with actual figures at 196.4% and 143.4%, respectively, according to the Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure covering potential interest shortfalls on the Class A Notes and senior fees. The cash reserve target amount is equal to 4% of the Class A Notes' principal outstanding and is currently 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 March 2025, the outstanding principal amounts of the Class A, Class B, and Class J Notes were EUR 51.5 million, EUR 35.0 million, and EUR 9.9 million, respectively. As of the March 2025 payment date, the balance of the Class A Notes had amortised by 82.2% since issuance and the current aggregated transaction balance was EUR 96.4 million.

As of February 2025, the transaction was performing above the Servicer's initial business plan expectations. The actual cumulative gross collections as of February 2025 equalled EUR 309.0 million, whereas the Servicer's initial business plan estimated cumulative gross collections of EUR 157.7 million for the same period. Therefore, as of February 2025, the transaction was overperforming by EUR 151.3 million (96.0%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 108.9 million at the BBB (sf) stressed scenario. Therefore, as of February 2025, 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 as of November 2024.

The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 294.7 million as of November 2024, results in a total of EUR 448.1 million, which is 4.4% lower than the total gross collections of EUR 468.9 million estimated in the initial business plan. As evidenced by the positive profitability, accounts were closed earlier and with higher cash flow compared with initial expectations. Conversely, expectations for still-open accounts have overall decreased considerably.

Excluding actual collections, the Servicer's expected future collections from March 2025 accounted for EUR 141.4 million. Morningstar DBRS' updated A (sf) credit rating stress assumes a haircut of 25.6% to the Servicer's updated business plan, considering future expected collections.

Considering the outperformance registered since issuance and the increased subordination, the rated bonds now pass higher credit rating stresses in the cash flow analysis. However, Morningstar DBRS believes that higher credit ratings would not be commensurate with the transaction's credit risk considering the potential higher variability of NPLs' cash flows, the exposure to the transaction account bank, and the downgrade provisions outlined in the transaction documents.

The transaction's final maturity date is in September 2038.

Morningstar DBRS' credit rating on the applicable class 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, 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 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 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, the Servicer, and Banca Finint, which comprise, in addition to the information received at issuance, the updated business plan from the Servicer as of November 2024, the investor report as of March 2025, and the quarterly servicer report and quarterly loan data tape, both as of February 2025.

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 26 April 2024, when Morningstar DBRS upgraded its credit rating on the Class A Notes to A (sf) from BBB (high) (sf) with a Positive trend.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on http://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 105.1 million at the A (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 confirmation of the Class A Notes at A (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 A (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: William Taliento, Assistant Vice President.
Rating Committee Chair: Christian Aufsatz, Managing Director.
Initial Rating Date: 16 December 2020

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 (11 April 2025), https://dbrs.morningstar.com/research/451813
-- 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.