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Rating Action:

Moody's assigns definitive rating to Italian ABS Notes backed by NPLs issued by Spring SPV S.r.l.

18 Jun 2020

Milan, June 18, 2020 -- Moody's Investors Service ("Moody's") has today assigned the following definitive rating to the Notes issued by Spring SPV S.r.l. (the "Issuer"):

....EUR 320M Class A Asset Backed Floating Rate Notes due September 2040, Assigned Baa1(sf)

Moody's has not assigned any ratings to the EUR 20M Class B Asset Backed Floating Rate Notes due September 2040 and the EUR 3.4M Class J Asset Backed Fixed Rate and Variable Return Notes due September 2040, which are also issued at the closing of the transaction.

The transaction is a static cash securitisation of non-performing loans ("NPLs") granted by BPER Banca S.p.A. ("BPER", Baa2(cr)/P-2(cr)), Banco di Sardegna S.p.A. ("BdS", unrated) and Cassa di Risparmio di Bra S.p.A. ("CR Bra", unrated), all part of the BPER group. This represents the third post-financial crisis NPL transaction sponsored by banks belonging to the BPER group.

The assets supporting the Notes are NPLs with a gross book value ("GBV") of around EUR 1.38 billion as of September 30, 2019 ("Cut Off date"). The gross collections from the Cut Off date, 30 September 2020, to the issue date amount to around EUR 86.5 million.

The portfolio will be serviced by Prelios Credit Servicing S.p.A. ("Prelios", unrated) in the role as master and special servicer. The servicing activities will be monitored by the monitoring agent Securitisation Services S.p.A. ("SECS", unrated). In addition, SECS has been appointed as back-up master servicer at closing and will step-in to take over the role of master servicer in case the master servicer agreement is terminated. SECS in its role as monitoring agent and back-up servicer will help the Issuer to find a substitute special servicer in case the servicing agreement with Prelios is terminated.

RATINGS RATIONALE

Moody's rating reflects an analysis of the characteristics of the underlying pool of defaulted loans, sector-wide and originator-specific performance data, protection provided by credit enhancement, the roles of external counterparties, and the structural integrity of the transaction

In order to estimate the cash flows generated by the pool, Moody's used a model that, for each loan, generates an estimate of: (i) the timing of collections; and (ii) the collected amounts, which are then used in the cash flow model that is based on a Monte Carlo simulation.

In Moody's view, the credit positive features of this deal include, among others:

(i) the portfolio composition: 57.2% of the pool by GBV are secured loans benefitting mainly from a first lien mortgage (52.5% of the GBV). Loans representing the remaining 42.8% of the pool by GBV are unsecured. In relation to the secured portfolio, residential properties represent around 32.7% of the total property valuation amount;

(ii) initial property values: all property values have been assessed either through a third party valuation (81.2%) or a valuation by an expert appointed by the court (12.7%) not older than 2018 , or have already been sold at auction (6.1%);

(iii) the granularity of the portfolio: top 1, top 10 and top 20 obligors represent around 2.87%, 11.52% and 16.61%, respectively, of the pool in GBV terms;

(iv) subordination trigger: interest on the Class B Notes is diverted to a more junior position in the waterfall if the net cumulative recoveries rate or the present net value of recoveries are lower than 95% of what is expected according to the special servicer's initial business plan; and

(v) alignment of interest: special servicing fees are linked to the performance of the deal thus aligning special servicer interest to that of Noteholders'.

However, the transaction has several credit negative features, as amongst others:

(i) secured loans representing around 47.5% of the secured GBV are still in the initial stage of the legal proceeding, which means that cash flows from these loans will likely be generated only in some years' time;

(ii) 29.0% of the secured GBV of the portfolio refer to properties which are undergoing or expected to undergo a bankruptcy procedure, bankruptcy procedures usually take a significantly longer time to go through the legal system than a foreclosure;

(iii) loans collateralized by land represent 13.9% in terms of real estate value, and hotels represent around 8.1% of the real estate value. These property types are usually less liquid than other property types; and

(iv) the property value assessment was conducted before the coronavirus pandemic outbreak, the effect of the pandemic can be reflected in lower market values in the future.

-Key transaction structure features:

Reserve fund: The transaction benefits from a cash reserve equal to 5% of the Class A Notes' balance (corresponding to EUR 16 million at closing) that amortises in line with the Class A Notes and it is funded by a limited recourse loan granted by BPER. The cash reserve is replenished immediately after the payment of interest on the Class A Notes and provides mainly liquidity support to the Class A Notes.

Hedging: As the collections from the pool are not directly connected to a floating interest rate, a higher index payable on the Notes would not be offset with higher collections from the pool. The transaction benefits from an interest rate derivative, comprising of two interest rate caps with J.P. Morgan AG (Aa1(cr)/P-1(cr)) acting as cap counterparty. In case that, the six- month EURIBOR goes above 0.10%, the cap counterparty will pay to the SPV the difference between 0.10% and a second strike level, which goes from 0.20% at the first IPD to 1.60% in 2036. On the other hand, the six-month EURIBOR for the Class A Notes is contractually capped to a level that mirrors the second cap's strikes. The notional amounts of the two interest rate caps are equal to the outstanding balance of the Class A Notes initially and then amortizing down with pre-defined amounts. Class B Notes are not hedged by the cap agreement, nonetheless Class B Notes interest, which can be senior to Class A Notes principal repayment, is contractually capped at 9.5%.

Moody's used its NPL cash-flow model as part of its quantitative analysis of the transaction. Moody's NPL model enables users to model various features of a European NPL ABS transaction - recovery rates under different scenarios, yield as well as the specific priority of payments and reserve funds on the liability side of the ABS structure.

-Counterparty risk analysis:

Prelios acts as master servicer and special servicer, respectively, of the non-performing loans for the Issuer, while SECS is the monitoring agent, the back-up servicer and the calculation agent of the transaction.

Most of the collections are paid directly into the issuer collection account at BNP Paribas Securities Services (Aa3/P-1), acting through its Milan Branch, with a transfer requirement if the rating of the account bank falls below Baa3.

Our analysis has considered the effect of the coronavirus outbreak on the Italian economy as well as the effects that the announced government measures, put in place to contain the virus, will have on the performance of underlying assets. The contraction in economic activity in the second quarter is severe and the overall recovery in the second half of the year will only be gradual. However, there are significant downside risks to our forecasts in the event that the pandemic is not contained and lockdowns have to be reinstated. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety and the continued uncertainties for the governance in the transaction as a governance risk under the same framework, given the potential impact on the credit quality of the transaction going forward.

Principal Methodology

The principal methodology used in this rating was "Non-Performing and Re-Performing Loan Securitizations Methodology" published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1222103. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the rating:

The Notes' rating is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The evolution of the associated counterparties risk, the level of credit enhancement and Italy's country risk could also impact the Notes' rating.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or Note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Francesca Pilu
Vice President - Senior Analyst
Structured Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Daniel Kolter
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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