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Rating Action:

Moody's assigns definitive ratings to BCC NPL 2019 S.r.l. ABS notes

19 Dec 2019

EUR 408 million of securities rated

Milan, December 19, 2019 -- Moody's Investors Service ("Moody's") has today assigned the following definitive ratings to the debts issued by BCC NPL 2019 S.r.l. (the Issuer):

....EUR 355M Class A Asset Backed Floating Rate Notes due January 2044, Assigned Baa2 (sf)

....EUR 53M Class B Asset Backed Floating Rate Notes due January 2044, Assigned B3 (sf)

Moody's has not assigned a rating to the EUR 13.2M Class J Asset Backed Fixed Rate and Variable Return Notes due January 2044, which are also issued at the closing of the transaction.

The transaction is a multi-originator static cash securitisation of non-performing loans (NPLs) granted by Iccrea Banca S.p.A., Iccrea BancaImpresa S.p.A., Banca Sviluppo S.p.A., and other 65 out of 140 local cooperative banks (unrated, all together "BCCs", the "originators") belonging to Gruppo Bancario Iccrea (unrated) to small and medium-sized enterprises (SMEs), self-employed individuals and individuals located in Italy. This represents the third NPL transaction sponsored by Iccrea Banking Group.

The assets supporting the Notes are NPLs with a gross book value (GBV) of EUR 1,324 million as of 31 December 2018 ("selection date"). The gross collections from the selection date to the transfer date (2 December 2019) amount to EUR 10.16 million, out of which only a portion are to the benefit of the transaction.

The portfolio will be serviced by Italfondiario S.p.A. and doValue S.p.A. in their roles as master and special servicer, respectively, both belonging to doValue banking group (unrated). The servicing activities will be monitored by the monitoring agent Zenith Service S.p.A. ("Zenith"; unrated). In addition, Securitisation Services S.p.A. ("SECS"; unrated) has been appointed as back-up servicer at closing and will step in to take over the role of master servicer in case the master servicer agreement is terminated. The monitoring agent together with the back-up servicer are helping the Issuer to find a substitute special servicer in case the master servicing agreement with Italfondiario S.p.A. is terminated.

RATINGS RATIONALE

Moody's ratings reflect 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 used in the cash flow model that is based on a Monte Carlo simulation.

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

(i) the portfolio composition with 81% of the GBV being secured loans benefitting mainly from a first lien mortgage (73%) and the remaining representing loans benefitting from at least a junior lien and unsecured loans. Properties valued by third party with a drive-by or internal visit (mainly performed in 2018 and 2019) represent around half of the property valuation amount. Only 10.4% of the first lien properties have been evaluated by an expert appointed by a court, the remaining having a desktop or statistical indexed valuation;

(ii) the granularity of the portfolio resulting from the 68 originators: borrowers with a GBV below EUR 5.0 million represent 93.1% of the total portfolio. Top 1, top 10 and top 20 obligors represent around 0.76%, 5.19% and 8.93%, respectively, of the pool in GBV terms;

(iii) in relation to the secured portfolio benefitting from a first lien mortgage, residential properties represent around 44% of the total real estate value;

(iv) secured loans benefitting from a first lien are backed by properties located mainly in the North and Center of Italy (accounting for approximately 42.8% and 37.2% of the real estate value, respectively);

(v) interest on the Class B Notes is postponed to a more junior position in the waterfall, if the cumulative recoveries rate is lower than 90% of the expected cumulative recovery rate according to the initial business plan anticipated by the special servicer. The Class A Notes will benefit from this structural feature, whereas Class B Notes will be negatively impacted; and

(vi) alignment of interest for the special servicer with the servicing fees have been constructed so that the special servicer is incentivized to maximize recoveries on the loans rather than collecting the very limited base fees.

However, the transaction has several challenging features, such as:

(i) loans representing around 54.7% of the GBV of the portfolio are in their initial legal proceeding stage, including 34.5% for which the legal proceedings have not started yet;

(ii) 47.7% of the GBV related to the loans with a legal proceeding started are undergoing a bankruptcy process, which usually takes significantly longer than a foreclosure;

(iii) loans benefitting from second or lower lien represent around 26.7% of the real estate value collateralizing the secured portfolio; and

(iv) loans collateralized by land represent 13.7% in terms of real estate value.

As of selection date, the underlying portfolio was composed of 15,944 non-performing loans for a gross book value (GBV) amounting to EUR 1,324.53 million. Loans to corporates make up 79.3% of the portfolio, while loans to individuals account for the remaining 20.7%. Borrowers defaulted from 2013 onwards represent 80.2% of the total GBV. Loans representing around 54.7% of the GBV of the portfolio are in their initial legal proceeding stage (including 34.5% for which the legal procedure has not started yet), whereas loans representing around 7.4% of the GBV are in the cash distribution phase, i.e. the judicial recovery process has been terminated and cash only needs to be distributed among creditors. Around 73% of the portfolio is secured by first-lien mortgage guarantees over different types of properties. Geographically, the properties are concentrated mostly in the North of Italy (42.8%) and in the Centre of Italy (37.2%). Residential properties represent around 44% of the real estate value, the remaining being commercial properties of different types (land and hotels represent 13.7% and 2.3%, respectively). For unsecured loans, the classification as non-performing exposure occurred on average around 5 years before the selection date.

- Key transaction structure features:

Reserve fund: The transaction benefits from an amortizing cash reserve equal to 3.0% of the Class A Notes balance (corresponding to EUR 10.65 million at closing) and funded by a limited recourse loan extended by Iccrea Banca S.p.a. (unrated). The cash reserve is replenished immediately after the payment of interest on the Class A Notes and mainly provides liquidity support to the Class A Notes.

Hedging: Class A Notes pay six-month EURIBOR capped at 1.30% moving up progressively to 3.5% at final maturity. Moreover, the transaction benefits from two interest rate cap agreements linked to six-month EURIBOR, with Banco Santander S.A. (Spain) (A3(cr)/P-2(cr)) acting as the cap counterparty. The Class A cap will have a strike starting at 0.30% moving up to 2.5% in June 2031, whereas the Class B cap will have a strike starting at 1% and moving up to 4.0% in June 2031. The notional of the interest rate caps are equal to the outstanding balance of the Class A and Class B Notes, respectively, at closing decreasing over time with pre-defined amounts.

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 :

Italfondiario S.p.A. and doValue S.p.A. act as master servicer and special servicer, respectively, of the non-performing loans for the Issuer, while Zenith Service S.p.a (unrated) is the monitoring agent and Securitisation Services S.p.A. (unrated) is the back-up servicer and the calculation agent of the transaction.

All collections are paid directly into the issuer collection account at BNP Paribas Securities Services (Aa3/P-1) with a transfer requirement if the rating of the account bank falls below Baa2.

- Principal Methodology:

The principal methodology used in these ratings was "Moody's Approach to Rating Securitizations Backed by Non-Performing and Re-Performing Loans" published in February 2019. 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 ratings:

The notes' ratings are 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 the Italy's country risk could also impact the notes' ratings.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario 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.

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.

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

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.

Monica Curti
VP - Senior Credit Officer
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

Carole Gintz
Associate Managing Director
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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