Press Release

Morningstar DBRS Places Aragorn NPL 2018 S.r.l.'s Credit Ratings Under Review With Negative Implications

Nonperforming Loans
July 11, 2025

DBRS Ratings GmbH (Morningstar DBRS) placed the Class A notes and the Class B notes issued by Aragorn NPL 2018 S.r.l. (the Issuer) Under Review with Negative Implications. The credit ratings on the Class A notes and Class B notes are currently CCC (sf) and CC (sf), respectively.

The transaction represents the issuance of Class A, Class B, and Class J notes (collectively, the Notes) backed by a mixed pool of Italian nonperforming secured and unsecured loans originated by Credito Valtellinese SpA and Credito Siciliano S.p.A.. The credit rating assigned to the Class A notes addresses the timely payment of interest and the ultimate repayment of principal. The credit rating assigned to the Class B notes addresses the ultimate payment of both interest and principal. Morningstar DBRS does not rate the Class J notes.

The gross book value (GBV) of the loan pool was approximately EUR 1.7 billion as of the 31 December 2017 cut-off date. The nonperforming loan portfolio consists of secured commercial and residential borrowers, representing 82.0% of the total GBV, and unsecured borrowers, representing 18.0% of the total GBV. The borrowers are mostly Italian small and medium-size enterprises, representing 90.2% of the total GBV. 68% of the total GBV is concentrated in 364 borrowers, out of a total of 4,161 borrowers. The top 50 borrowers made up 26.8% of the pool GBV at the cut-off date.

The receivables are now serviced by Fire S.p.A. (the Special Servicer) after the replacement of each of the previous special servicers (Special Gardant S.p.A. and Cerved Credit Management S.p.A.) in the context of an amendment that involved the execution of a termination letter, a master amendment agreement, and a new servicing agreement, all of which were signed in May 2024 and came into effect in July 2024. doNext S.p.A. acts as the master servicer whilst Cerved Master Services S.p.A. operates as the backup servicer.

CREDIT RATING RATIONALE
The credit rating actions follow Morningstar DBRS' review of the transaction and are based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of March 2025 focusing on (1) a comparison between actual collections and the initial business plan forecast, (2) the collection performance observed over recent months, and (3) a comparison between the current performance and Morningstar DBRS' expectations.
-- Portfolio characteristics: Loan pool composition as of March 2025 and the evolution of its core features since issuance.
-- 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 collection ratio (CCR) or present value cumulative profitability ratio (PV CPR) is lower than 100% prior to and including 31 July 2019, or lower than 90% from 31 January 2020 onwards. The CCR trigger was activated since the first interest payment date (IPD) and cured in January 2020. The CCR trigger has been breached again since the July 2020 IPD. The actual figures for the CCR and PV CPR were 65.5% and 103.6% as of the January 2025 IPD, respectively, according to the Special 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 5.0% 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 on the Class A, Class B, and Class J notes were EUR 254.2 million, EUR 66.8 million, and EUR 10.0 million, respectively. As of January 2025, the balance on the Class A notes had amortised by 50.1% since issuance and the current aggregated transaction balance was EUR 331.0 million.

As of March 2025, the transaction was underperforming the initial business plan expectations. The actual cumulative gross collections equalled EUR 381.0 million whereas the initial business plan estimated cumulative gross collections of EUR 620.0 million for the same period. Therefore, as of March 2025, the transaction was underperforming by EUR 238.9 million (-38.5%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections for the same period of EUR 497.2 million at the BBB (low) (sf) stressed scenario and EUR 606.0 million at the CCC (sf) scenario. Therefore, as of March 2025, the transaction was performing below Morningstar DBRS' initial stressed expectations in the BBB (low) (sf) scenario and the CCC (sf) scenario.

Pursuant to the requirements set out in the master amendment agreement signed on 28 May 2024, the Special Servicer is required to provide, on a yearly basis, an updated business plan starting from 2025. An updated portfolio business plan for the current year has not been provided yet. Considering the deterioration of the performance of the transaction as of March 2025 and the lower-than-expected amortisation speed, a decrease in future cash flow projections could result in a downgrade of the credit ratings on the Class A notes and Class B notes.

The final maturity date of the transaction is in July 2038.

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/454196.

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.

Morningstar DBRS is undertaking a review and will remove the credit rating from this status as soon as it is appropriate.

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/457952.

The sources of data and information used for these credit ratings include the Issuer, the Special Servicer, Banca Finanziaria Internazionale S.p.A., and Citibank, N.A., which comprise, in addition to the information received at issuance, the investor report as of January 2025; the semiannual servicer report as of December 2024; and the quarterly servicer report as of March 2025.

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 affect 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 12 July 2024, when Morningstar DBRS confirmed its CCC (sf) and CC (sf) credit ratings on the Class A and Class B notes, respectively. Morningstar DBRS also maintained its Negative trend on the Class A notes.

The lead analyst responsibilities for this transaction have been transferred to Sijia Aulenbacher.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

These credit ratings are Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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: Sijia Aulenbacher, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 14 June 2018

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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 (8 May 2025), https://dbrs.morningstar.com/research/453613
-- European CMBS Rating and Surveillance Methodology (24 June 2025), https://dbrs.morningstar.com/research/456815
-- 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 (16 May 2025), https://dbrs.morningstar.com/research/454196

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.

Ratings

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  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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