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Rating Action:

Moody's assigns definitive ratings to Italian ABS notes backed by NPLs issued by Riviera NPL S.r.l.

17 Dec 2018

London, 17 December 2018 -- Moody's Investors Service ("Moody's") has today assigned definitive long-term credit ratings to the following notes issued by Riviera NPL S.r.l. (the "Issuer"):

EUR 175,000,000 Class A Asset Backed Floating Rate Notes due July 2036, Assigned Baa3 (sf)

EUR 30,000,000 Class B Asset Backed Floating Rate Notes due July 2036, Assigned Ca (sf)

Moody's has not assigned any rating to the EUR 10,000,000 Class J Asset Backed Floating Rate and Variable Return Notes due July 2036, which are also issued at the closing of the transaction.

This transaction is backed by non-performing loans ("NPLs") originated by Banca Carige S.p.A. ("Banca Carige"; Caa1) and its subsidiary, Banca del Monte di Lucca S.p.A. ("BML"; NR). Banca Carige has originated one other NPL transaction rated by Moody's: Brisca Securitisation S.r.l. In this second transaction, Banca Carige contributes around 97% of the underlying pool and the rest is being originated by BML (together the "Originators"). The assets supporting the notes are NPLs with a gross book value ("GBV") of around EUR 964 million as of the cut-off date, comprising also collections since the cut-off date, December 2017, to the transfer date totaling around EUR 11.8 million.

The portfolio will be serviced by Credito Fondiario S.p.A. ("CF"; NR) as master and special servicer and Italfondiario S.p.A. ("IF"; NR) as special servicer. The servicing activities performed by CF and IF are monitored by the monitoring agent, Zenith Service S.p.A. (NR). Securitisation Services S.p.A. ("SECS"; NR) has been appointed as back-up servicer facilitator at closing and will step in to take over the role of master servicer in case the servicing agreement is terminated. To ensure payment continuity over the transaction's lifetime, the transaction documents incorporate estimation language according to which the calculation agent, SECS, will prepare the payment report based on estimates if the semi-annual servicer report is not available.

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.

The key drivers for the estimates of the collections and their timing are: (i) the historical data received from the servicer and the Originators, which shows the historical recovery rates and timing of collections for secured and unsecured loans; (ii) loans representing around 52% of the GBV are unsecured loans, while the remaining 48% of the GBV are secured loans, whereof about 9% in terms of GBV are secured with a second or lower ranking lien; (iii) of the secured loans, 41% are backed by residential properties, and the remaining 59% by different types of non-residential properties; (iv) in terms of GBV, 21% of the cases are bankruptcies, which usually take a significantly longer time to go through the legal system than a foreclosure (38%) whilst 41% of the cases have not started to date (and are classified as pre-bankruptcy); (v) top ten borrowers accounting for approximately 21.2% of the GBV; and (vi) benchmarking with comparable Italian NPLs 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 benefits from an interest rate derivative featuring an interest rate cap on the underlying six-month EURIBOR, with J.P. Morgan AG (Aa1(cr)/P-1(cr)) acting as cap counterparty. The notional amounts of the interest rate cap are equal to the outstanding balance of the Class A notes initially and then amortizing with pre-defined amounts. The cap will have a strike of 0.30% over the lifetime of the transaction.

Transaction structure: The transaction benefits from an amortising Cash Reserve equal to 4.0% of the Class A notes balance (the equivalent of EUR 7 million initially), which has been funded through a limited recourse loan provided by the Originators at closing. The Cash Reserve is replenished after the interest payments on the Class A notes, and covers Class A notes' interest and more senior items. At the strike rate of the cap, the Cash Reserve would be sufficient to cover around 12 months of interest on the Class A notes and more senior items.

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.

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 Credit Ratings for Riviera NPL S.r.l. was assigned in accordance with Moody's existing methodology entitled "Moody's Approach to Rating Securitisations Backed by Non-Performing and Re-Performing Loans" published in August 2016. Please note that on 14th November 2018, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its methodology for Non Performing and Re-Performing Loans. If the revised methodology is implemented as proposed, the Credit Ratings on Riviera NPL S.r.l. are not expected to be affected. Please refer to Moody's Request for Comment, titled "Proposed Update to Moody's Approach to Rating Securitisations Backed by Non-Performing and Re-Performing Loans" for further details regarding the implications of the proposed methodology revisions on certain Credit Ratings.

The definitive ratings address the expected loss posed to investors by the legal final maturity of the notes. Other non-credit risks have not been addressed, but may have significant effect on yield to investors.

FACTORS THAT WOULD LEAD TO AN 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 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 and/or a change in economic conditions from our central scenario forecast or idiosyncratic performance factors. For instance, should economic conditions be worse than forecasted, falling property prices the sale of the properties would generate less cash flows for the Issuer or it would take a longer time to sell the properties, and in addition, the weaker economic conditions could make it harder to recover the unsecured loans and all these factors could result in a downgrade of the ratings. Additionally, counterparty risk could cause a downgrade of the ratings 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 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. 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.

Tobias Venzke
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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 Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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