Morningstar DBRS Downgrades Credit Rating on ISEO SPV S.r.l. to BB (low) (sf) From BB (sf), Negative Trend

DBRS Ratings GmbH (Morningstar DBRS) downgraded its credit rating on the Class A notes issued by ISEO SPV S.r.l. (the Issuer) to BB (low) (sf) from BB (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.

As of the 31 March 2019 economic effective date, the Notes were backed by a EUR 858 million portfolio by gross book value consisting of secured and unsecured nonperforming loans originated by Unione di Banche Italiane S.p.A.

Since the 4 December 2019 transfer date, doValue S.p.A. (the servicer) has serviced the receivables and doNext S.p.A. (formerly Italfondiario S.p.A.) has acted as master servicer. A backup servicer, Banca Finanziaria Internazionale S.p.A. (Banca Finint; formerly Securitisation Services S.p.A.), was also appointed.

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 January 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 90%. These triggers were activated since the first interest payment date (IPD) and cured in January 2023. The unpaid interests on the Class B notes in previous periods were all distributed in July 2023. The actual figures for the CCR and NPV ratio were at 102.5% and 107.4% 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 Class A notes' principal outstanding balance and the recovery expenses cash reserve target amounts to EUR 250,000, both fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from January 2025, the outstanding principal amounts of the Notes were EUR 122.9 million, EUR 25 million, and EUR 13.5 million, respectively. As of January 2025, the balance of the Class A notes had amortised by 63.3% since issuance, and the current aggregated transaction balance was EUR 161.4 million.

As of December 2024, the transaction was performing above the servicer's business plan expectations. The actual cumulative gross collections equalled EUR 274.3 million, whereas the servicer's initial business plan estimated cumulative gross collections of EUR 258.1 million for the same period. Therefore, as of December 2024, the transaction was overperforming by EUR 16.2 million (6.3%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 194.4 million at the BBB (sf) stressed scenario. Therefore, as of December 2024, the transaction was performing above Morningstar DBRS' initial stressed scenarios.

Pursuant to the requirements set out in the receivable servicing agreement, in January 2025, the servicer delivered an updated portfolio business plan. The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 274.3 million as of December 2024, resulted in a total of EUR 448 million. This is 13.4% lower than the total gross disposition proceeds of EUR 517.2 million estimated in the initial business plan. Considering the outperformance of initial expectations in terms of CCR and NPV to date, future expectations have been revised down substantially. Excluding actual collections, the servicer's expected future collections from January 2025 equalled EUR 173.7 million. The updated Morningstar DBRS BB (low) (sf) credit rating stress assumes a haircut of 10.5% to the servicer's updated business plan, considering future expected collections.

Morningstar DBRS observed an improved performance trend in terms of cumulative collection ratio and an increase in gross collections in the updated business plan delivered in January 2025 compared with the last business plan, however, the amortisation of Class A notes slows down due to decreasing actual collections, as well as the Class B interest payments. Furthermore, the conversion ratio between the early redemption of Class A notes and cumulative gross collections has reduced to 77.3% from 79.2%, and Morningstar DBRS expects it will follow a decreasing trend due to the continual interest payments on Class B notes and increased GACS fees from the next IPD.

In light of the above and given the downward revision of the servicer's expectations for the remaining portfolio, Morningstar DBRS does not deem the currently positive performance trend to be sustainable and, considering the slowdown of the amortisation of Class A notes as well as the declining tendency of the conversion ratio, Morningstar DBRS downgraded the credit rating on the Class A notes to BB (low) (sf). The trend on the credit rating remains Negative.

The transaction's final maturity date is 29 July 2039.

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, doValue S.p.A. and Banca Finint, which comprise, in addition to the information received at issuance, the updated business plan from the servicer received in January 2025, the investor report as of January 2025, the semiannual servicer report as of December 2024, and the loan-by-loan data 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 24 April 2024, when Morningstar DBRS downgraded its credit rating on the Class A notes to BB (sf) from BBB (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 429.8 million (EUR 155.5 million from January 2025 on) at the BB (low) (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 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: Christian Aufsatz, Managing Director
Initial Rating Date: 16 December 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 (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.