Milan, November 23, 2017 -- Moody's Investors Service ("Moody's") has today assigned definitive long-term
credit ratings to the following notes issued initially in July 2017 and
amended on the 22th November 2017 by Fino 1 Securitisation S.r.l.
(the "Issuer"):
....EUR650,000,000 Class A Asset-Backed
Floating Rate Notes due October 2045, Assigned A2 (sf)
....EUR29,640,000 Class B Asset-Backed
Floating Rate Notes due October 2045, Assigned Ba3 (sf)
....EUR40,000,000 Class C Asset-Backed
Floating Rate Notes due October 2045, Assigned B1 (sf)
Moody's has not assigned any rating to EUR50,311,000 Class
D Asset-Backed 12 per cent and Variable Return Notes due October
2045, which were also issued at the closing of the transaction in
July 2017.
RATINGS RATIONALE
This is the first transaction backed by non-performing loans ("NPLs")
rated by Moody's with loans originated by Unicredit S.p.A.
("Unicredit"; Baa1/P-2/Baa1(cr)/P-2(cr)). The
assets supporting the notes are NPLs with a gross book value (GBV) of
EUR5,374 million as of 3 July 2017. From this amount we have
deducted collections received from that date up to 4 November 2017 not
available for the future.
The portfolio is serviced and will continue to be serviced by doBank S.p.A.
("doBank"; NR) in its role as master and special servicer.
The servicing activities performed by doBank are monitored by the portfolio
monitor agent, an entity affiliated with Fortress (i.e.
Fortress Italian NP Opportunities Series Fund LLC Series 8, NR).
Neither a back-up servicer nor a back-up servicer facilitator
has been appointed at date of the rating assignment, however the
portfolio monitor agent will monitor the performance of the special servicer
by sub-portfolios and may start a benchmarking process in the event
of under-performance with respect to business plan. Moreover,
if the servicer report is not available at any payment date, the
continuity of payment for the rated notes will be assured by the calculation
agent that prepares the payment report based on estimates and a simplified
waterfall.
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 a cash flow model that is based
on a Monte Carlo simulation.
The key drivers for the estimates of the collections and their timing
are: (i) the historical data received from the special servicer,
which shows historical recovery rates and timing of collections for secured
and unsecured loans; (ii) the portfolio composition with 48%
of the GBV being unsecured loans (where at least one loan attached to
the borrower has defaulted within the last 2 years) and 52% of
the GBV representing secured loans (thereof about 5% of the GBV
secured by a second or lower ranking lien); (iii) 93% of the
GBV are loans owned by companies, while the remaining 7%
of the GBV are loans where the borrower was a business owner; (iv)
80% of the GBV are loans mostly owned by borrowers defaulted from
2010 onwards (so called "small and medium-sized portfolio"),
while the remaining 20% of the GBV are loans where the borrower
usually defaulted before 2010 (so called "legacy portfolio");
(v) in relation to the secured portfolio, residential properties
represent around 49% of the total real estate valuation amount,
the remaining being commercial properties by different types (land and
hotels represents 2.9% and 3.6%, respectively).
Properties located in the North of Italy account for approximately 45%
of the total valuation amount. Out of the 26,913 properties
backing the portfolio we have only considered 12,633 properties,
because some key information, such as the real estate valuation
and the mortgage amount, were not available; (vi) 36%
of the GBV are loans undergoing an insolvency process (including a bankruptcy
process), which usually takes significantly longer than a foreclosure;
(vii) loans representing around 57.9% of the GBV for the
secured portion of the portfolio are in their initial legal proceeding
stage (typically with a refreshed real estate valuation), the remainder
being mainly in the process to be evaluated by an expert appointed by
the court or in the auction phase (for a total of around 31% of
the secured portfolio, typically with a valuation provided by an
expert appointed by the court, but sometime dated before 2014);
and (viii) benchmarking with comparable Italian NPL transactions.
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 therefore benefits from an interest rate cap agreement,
linked to three-month EURIBOR, with HSBC France (Aa2(cr)/P-1(cr))
as cap counterparty. The notional of the interest rate cap is equal
to EUR 650,000,000 (i.e. at the date of rating
assignment equal to the outstanding balance of the Class A) decreasing
over time. The cap will have a strike starting at 0.50%
moving up to 1.5%.
Transaction structure: The transaction benefits from an amortising
cash reserve equal to 5% of the Class A notes balance (equivalent
to EUR32.5 million at rating date assignment), which will
be funded by a limited recourse loan extended by Natixis (A1(cr)/P-1(cr))
in case of any shortfall on the first payment date in January 2018.
The cash reserve is replenished after the interest payments on the Class
A notes. However Moody's notes that (i) the cash reserve is not
available to cover Class B and C interest; (ii) unpaid interests
on Class B and C are deferrable without accruing interests on interests;
and (iii) interests on Class B and C move to a more a junior position
upon certain performance triggers being breached. Moody's
has factored in the rating of Class B and C the high likelihood of a prolonged
period of deferral of interests without accruing interests on interests.
Moody's used its NPL cash-flow model as part of its quantitative
analysis of the transaction. The Moody's NPL model enables users
to model various features of a European NPL ABS transaction, such
as 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.
Moody's Parameter Sensitivities: The model output indicates that
(i) with respect to the secured portion of the portfolio, if the
price volatility were to be increased to 8.08% from 6.73%
for residential properties and to 9.94% from 8.29%
for commercial properties and it would take an additional 18 months to
go through the foreclosure process; and (ii) with respect to the
unsecured portion of the portfolio, if the volatility (i.e.
the standard deviation divided by mean recovery rate) were to be increased
to 20% from 5%, the Class A notes rating would move
to Baa2 (sf) assuming that all other factors remained unchanged.
Moody's Parameter Sensitivities provide a quantitative/model-indicated
calculation of the number of rating notches that a Moody's structured
finance security may vary if certain input parameters used in the initial
rating process differed. The analysis assumes that the deal has
not aged and is not intended to measure how the rating of the security
might migrate over time, but rather how the initial rating of the
security might have differed if key rating input parameters were varied.
Parameter Sensitivities for the typical EMEA ABS transaction are calculated
by stressing key variable inputs in Moody's primary rating model.
METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating Securitisations Backed by Non-Performing and Re-Performing
Loans" published in August 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The definitive ratings address the expected loss posed to investors by
the legal final maturity of the notes. In Moody's opinion,
the structure allows for timely payment of interest and ultimate payment
of principal with respect to the Class A notes by legal final maturity
only. Other non-credit risks have not been addressed,
but may have significant effect on yield to investors.
FACTORS THAT WOULD LEAD TO A UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors that may lead to an upgrade of the ratings include that the recovery
process of the defaulted loans produces significantly higher cash flows
realised in a shorter time frame than expected. Factors that may
cause a downgrade of the ratings include significantly less or slower
cash flows generated from the recovery process compared with our expectations
at close due to either a longer time for the courts to process the foreclosures
and bankruptcies or a change in economic conditions (such as the situation
of the real estate market) from our central scenario forecast or idiosyncratic
performance factors. For instance, should economic conditions
be worse than forecasted and the sale of the properties would generate
less cash flows for the Issuer or it would take a longer time to sell
the properties, all these factors could result in a downgrade of
the ratings. Additionally counterparty risk could cause a downgrade
of the rating due to a weakening of the credit profile of transaction
counterparties. Finally, unforeseen regulatory changes or
significant changes in the legal environment may also result in changes
of the 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 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 or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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
Thorsten Klotz
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
