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Rating Action:

Moody's assigns ratings to the first Italian ABS Notes backed by both non-performing loans and leases originated mainly by Iccrea banking group and issued by BCC NPLs 2021 S.r.l.

29 Nov 2021

Milan, November 29, 2021 -- Moody's Investors Service ("Moody's") has today assigned the following ratings to the debts issued by BCC NPLs 2021 S.r.l. (the Issuer):

....EUR 284.0M Class A Asset Backed Floating Rate Notes due April 2046, Assigned Baa2 (sf)

....EUR 39.5M Class B Asset Backed Floating Rate Notes due April 2046, Assigned Caa2 (sf)

Moody's has not assigned a rating to the EUR 13M Class J Asset Backed Fixed Rate and Variable Return Notes due April 2046, which are also issued at the closing of the transaction.

The transaction is a multi-originator static cash securitisation of non-performing loans and non-performing leases (NPLs) granted by 74 out of 128 banks belonging to Gruppo Bancario Cooperativo Iccrea (unrated), including Iccrea BancaImpresa S.p.A. (unrated) as lessor, as well as by Banca Ifis S.p.A. (unrated), Guber Banca S.p.A. (unrated) and Cassa di Risparmio di Asti S.p.A. (unrated, all together the "originators"), to small and medium-sized enterprises (SMEs), self-employed individuals and individuals located in Italy. This represents the fifth NPL transaction sponsored by Iccrea Banking Group. This transaction represents the first Italian non-performing transaction backed by both loans and receivables resulting from leases and is expected to benefit from the public guarantee for non-performing securitizations (GACS).

The assets supporting the Notes are NPLs with a gross book value (GBV) of EUR 1,311,921,511 as of 30 June 2021 ("selection date")*, out of which around EUR 164 million are receivables derived from real estate financial lease agreements. The gross collections from the selection date until 25 October 2021 amount to approximately EUR 1.8 million, representing cash available at closing for the transaction.

*For 7.6% and 6.8% of the loan sub-portfolio the selection date was 31 July 2021 and 30 September 2021, respectively.

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). doValue S.p.A. will also services the GBCI LeaseCo S.r.l. ("LeaseCo") and acts as Real Estate Operating Company ("ReoCo") asset manager for the ReoCo, if activated. The servicing activities will be monitored by the monitoring agent Zenith Service S.p.A. ("Zenith", unrated). In addition, Banca Finanziaria Internazionale S.p.A. ("Banca FinInt", 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 will help the Issuer to find a substitute special servicer in case the special servicing agreement with doValue S.p.A. is terminated.

The transaction also envisages the option, upon request of the mezzanine and junior investors, to activate the involvement of a Real Estate Operating Company. Should the ReoCo be activated before October 2023, the special servicer may propose the ReoCo's intervention at the auction of real estate properties. The resale of such properties will need to occur within up to 20 months after the purchase, otherwise the ReoCo will grant an irrevocable mandate to a professional to sell the properties. The ReoCo can at any time own properties for an amount not higher than EUR 4 million (in terms of purchase price). The financing of the ReoCo to purchase the real estate properties, as well as the financing of the ReoCo operating costs, will be provided by a replenishable funding reserve of EUR 400,000, which represent part of the upfront costs of the transaction and financed via the limited recourse loan. The ReoCo funding reserve may be replenished over the life of the transaction via partial retention of the surplus on sold properties and with third party financing under certain conditions, e.g. good performance of the transaction and of the ReoCo.

RATINGS RATIONALE

Moody's ratings reflect an analysis of the characteristics of the underlying pool of defaulted loans and leases, 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 and lease, 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 credit positive features of this deal include, among others:

(i) the loan portfolio composition with 67.1% of the GBV relating to borrowers with at least a secured loan. 74% of the real estate value relates to first lien loans. Properties valued by third party with a drive-by or internal visit (mainly performed after 2018) represent around 54.2% of the property valuation amount. Only 9.9% of the 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 loan portfolio resulting from the multi-originators: top 1, top 10 and top 20 obligors represent 1.5%, 8.5% and 13.7%, respectively, of the loan portfolio in GBV terms and borrowers with a GBV below EUR 5.0 million represent 86.3% of the total portfolio;

(iii) significant amount of real estate leased assets already repossessed: 12.5% of the total GBV relates to non-performing leases (mainly small ticket), out of which 60% relates to assets already repossessed by Iccrea BancaImpresa S.p.A. and 26.4% are regular and, hence, ready to be sold on the open market. The sale of these properties are expected to provide significant liquidity support during the first years of the transaction;

(iv) secured loans benefitting from a first lien are backed by properties located mainly in the North and Center of Italy (accounting for approximately 44.1% and 39.4% of the real estate value, respectively); the leased real estate properties are also located mainly in the North of Italy (40.6%) and, specifically, in Lombardy (15% of total real estate value). Lombardy has historically been the most liquid regional market for non-residential properties thus leading to a faster sale process than in other regions;

(v) interest on the Class B Notes is postponed to a more junior position in the waterfall, if the cumulative collection ratio or the PV cumulative profitability ratio 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 62% of the GBV of the loan portfolio are in their initial legal proceeding stage, including 42.5% for which the legal proceedings have not started yet;

(ii) 50% 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 collateralized by land and hotels represent 13.1% and 4.5%, respectively, in terms of real estate value, whereas industrial and commercial buildings represent 59.3% and 24.1% respectively of lease portfolio property market value. Historically industrial properties have taken longer to sell than offices but the trend in e-commerce and appetite for last mile logistics in Italy is reversing the trend. On the opposite, retail properties have been particularly impacted by the coronavirus crisis and the social distancing measure put in place by the Italian government. In addition, the liquidity of some non-residential properties could be significantly impacted in a stressed economic environment;

(iv) lessees in bankruptcy procedures represent 66% of the gross claim, the remaining being mainly under no procedure. The repossession process usually takes slightly longer in case a lessee is in bankruptcy, but still significantly faster than the time to go to auction in the enforcement procedure for a loan collateralized by a real estate property;

(v) once a property is repossessed, the issuer will incur property maintenance costs and, in case the asset is not regular, will have to bear the costs of regularizing the asset before being able to sell the property to a third party;

(vi) assets equal to 76.3% of the lease portfolio property market value need to complete the regularization process in order to be transferred to third parties. Cash flows from these assets will likely be generated only in some years' time from now.

As of selection date, the underlying portfolio was composed of 11,060 non-performing loans and 211 non-performing leases for a gross book value (GBV) amounting to EUR 1,147,411,545.71 and EUR 164,509,965.69, respectively, for a total of EUR 1,311,921,511.40. Loans to corporates make up 78.8% of the portfolio, while loans to individuals account for the remaining 21.2%. Borrowers defaulted from 2013 onwards represent 87.1% of the total GBV. Loans representing around 62% of the GBV of the portfolio are in their initial legal proceeding stage, whereas loans representing around 6.7% 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 67.1% of the loan portfolio is secured by mortgage guarantees over different types of properties. Residential properties represent around 41.9% of the real estate value, the remaining being commercial properties of different types. Geographically, the properties backing the loans are concentrated mostly in the North of Italy (44.1%) and in the Centre of Italy (39.4%). The classification as non-performing exposure occurred on average around 4 years and 5.7 years before the selection date for the unsecured loans and the non-performing leases, respectively.

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 8.52 million at closing) and funded by a EUR 13.52 million limited recourse loan extended by Iccrea Banca S.p.A., Banca Ifis S.p.A., Guber Banca S.p.A. and Cassa di Risparmio di Asti S.p.A. 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. The outstanding limited recourse loan will be reimbursed in line with the amortization of the Class A note, mainly with the release of the cash reserve.

LeaseCo: The assets and the asset management agreements have been transferred to an ancillary special purpose entity, GBCI LeaseCo S.r.l., whose sole corporate business is the acquisition, management, enhancement and sale of the properties for the benefit of the securitization transaction only. The financing of LeaseCo's operating costs will be mainly provided by a replenishable recovery reserve of EUR 3.6M, which will be initially funded through the limited recourse loan, and then amortizing down progressively till EUR 110,000 in 2030. During the life of the transaction, the reserve will be replenished first with the collections generated by the assets and, if the funds are insufficient, by the SPV recovery reserve and, if this reserve is also depleted, by the issuer collection account.

Hedging: Class A Notes pay six-month EURIBOR which has a cap starting at 0.5% for the payment date in April 2025, moving up progressively to 1.2% in April 2032 and till final maturity. Moreover, the transaction benefits from interest rate cap spread agreements linked to six-month EURIBOR, with J.P. Morgan AG (Aa1(cr)/P-1(cr)) and Banco Santander S.A. (Spain) (A3(cr)/P-2(cr)) acting as the cap counterparties. The Class A cap will have a lower strike starting at 0% moving up to 0.4% in April 2027 and being stable till April 2035 and an upper strike starting at 0.5% for the payment date in April 2025, moving up progressively to 1.2% in April 2032 and till final maturity. The notional of the interest rate caps are equal to the outstanding balance of the Class A 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 Banca FinInt (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 "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 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 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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

Ifigenia Palimeri
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.
© 2022 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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