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Rating Action:

Moody's assigns definitive ratings to Italian NPLs notes backed by unsecured NPLs issued by Marathon SPV S.r.l.

05 Dec 2019

Approximately EUR 320.2 million of Debt Securities rated

Milan, December 05, 2019 -- Moody's Investors Service ("Moody's") has today assigned definitive long-term credit ratings to the following notes issued by Marathon SPV S.r.l.:

EUR 286.5M Class A Asset Backed Fixed Rate Notes due October 2034, Assigned Baa2(sf)

EUR 33.7M Class B Asset Backed Fixed Rate Notes due October 2034, Assigned B1(sf)

Moody's has not assigned any rating to EUR 16.9M Class J Asset Backed Fixed Rate and Variable Return Notes due October 2034.

Marathon SPV S.r.l., is the first Italian transaction backed by a portfolio comprising only unsecured non-performing loans (NPLs).

Hoist Finance AB (Baa3/P-3) is the sponsor of the transaction and the portfolio will be sold to the Issuer by two special-purpose vehicles (SPVs). The senior notes will not be covered by the GACS.

The total balance of Class A, Class B and Class J Notes is equal to EUR 337.029M representing approximately 6.70% of the GBV.

The portfolio has a gross book value (GBV) of €5,027.5 million, including € 31.9 million of net collections that will be available to repay the notes on the first IPD. The loans have been originated by several Italian banks and financial institutions, including Banco BPM, Agos Ducato and the assets have an average seasoning from default of over six years. Loans to corporates make up 42.6% of the portfolio, while loans to individuals account for the remaining 57.4%.

A significant portion of the borrowers (19.6%) had entered into a recovery plan secured by a promissory notes ("cambiali") and we expect that most of the recoveries will come from these loans. The portfolio will be serviced by Hoist Italia S.r.l. (NR), wholly owned by Hoist Finance AB (Baa3, Senior Unsecured), in his role as special servicer and the servicing performance will be monitored by the monitoring agent, Securitisation Services S.p.A. (NR).

Securitization Services SpA has also been appointed as master servicer at closing and will help the issuer to find a substitute special servicer in case the special servicing agreement with Hoist Italia is terminated. In addition, Centotrenta Servicing S.p.A is the backup servicer for the master servicer role.

Moody's has determined the average recovery and volatility values from the available historical data and has used a Beta distribution to simulate the asset cashflows resulting from the portfolio. The key drivers for the estimates of the collections and their timing are:

(i) eight years of historical data received from Hoist Italia s.r.l, which shows the historical recovery rates and timing of the collections for the unsecured loans;

(ii) the portfolio composition with 19.6% of the GBV being promissory notes out of which around 50% is performing with an average payment of around € 150 per month;

(iii) the granularity of the portfolio in terms of the low borrower concentration. Borrowers with a GBV below €1.0 million represent 49.2% of the total portfolio. In addition, the top 10 and top 20 obligors represent around 0.8% and 1.2%, respectively, of the pool in GBV terms;

(iv) the special servicer Hoist Italia Sr.r.l. has been managing the loans in this portfolio for approximately 2 years and performances, so far, have been better than their initial forecast;

(v) benchmarking with comparable Italian NPL transactions and with recovery data received by Moody's on consumer loans for previously rated performing transactions.

Transaction structure:

The transaction benefits from an amortizing cash reserve equal to 3.0% of the Class A Notes balance (corresponding to EUR 8.6 million at closing) and funded with a limited recourse loan. 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, whereas interest on Class B is paid junior to reimbursement of Class A if the interest subordination trigger is breached.

The limited recourse loan, used to fund the amortising cash reserve and the recovery expenses reserve, will rank pari passu with the payment of Class A principal and interest and it will be repaid mainly using collections and the cash reserve amortization amount.

The amortization of the notes will follow a modified pro-rata mechanism. If on any calculation date the cumulative collection ratio for the immediately preceding calculation date is lower than 95%, the class A and the limited recourse loan will amortize pro rata using 100% of the available funds. On the contrary if the cumulative collection ratio is above 95%, the joint amortization of the class A and the limited recourse loan will be capped at 90% of the available funds and the remaining 10% will be used to amortize the class B notes.

The notes are paying a fixed interest rate coupon and therefore the transaction is not exposed to interest rate risk.

METHODOLOGY

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

Factors that may lead to an upgrade of the ratings include that the recovery process of the defaulted loans produces significantly higher cash flows/collections. 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, a change in economic conditions from our central scenario forecast, or idiosyncratic performance factors. For instance, should economic conditions be worse than forecasted, the agreed repayment plans could generate less cash flows than expected or it would take a longer time for the borrower to complete it, 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, 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.

Andrea Corda
AVP-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

Barbara Rismondo
Senior Vice President/Manager
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.
© 2020 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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