Milan, April 06, 2021 -- Moody's Investors Service ("Moody's") has today
downgraded the ratings of Class A and Class B Notes in BCC NPLs 2018 S.r.l.
The rating action reflects lower than anticipated cash-flows generated
from the recovery process on the non-performing loans (NPLs) which
translates into a reduced credit enhancement of the Notes.
....EUR 282M Class A Notes, Downgraded
to Ba3 (sf); previously on Jul 22, 2020 Downgraded to Ba1 (sf)
....EUR 31.4M Class B Notes,
Downgraded to Caa3 (sf); previously on Jul 10, 2018 Assigned
Caa2 (sf)
RATINGS RATIONALE
The rating action is prompted by lower than anticipated cash-flows
generated from the recovery process on the NPLs resulting in a reduced
credit enhancement.
-Lower than anticipated cash-flows generated from the recovery
process on the NPLs:
As of the latest reporting date both Cumulative Collection Ratio and NPV
Cumulative Profitability Ratio were below 100%, 91.64%
and 91.73%, respectively.
A low Cumulative Collection Ratio means collections are coming slower
than anticipated and low NPV Cumulative Profitability ratio means actual
collections are significantly lower than what expected. NPV Cumulative
Profitability ratio is the ratio between collections and the Net Present
Value, discounted at 3.5% yield, of expected
collections as per the original business plan.
In particular, as of the latest reporting date, a significant
portion of collections, EUR 15 million out of EUR 32 million,
comes from Notesales, i.e. an outright sale of one
or more NPL claims. The final recovery rate linked to these positions
recovered through Notesale, mostly secured claims, is at 26%
: this value is much lower than the average collection rate we had
anticipated. EUR 12 million of these Notesales refer to a sale
back to the originators.
-Deterioration of the level of credit enhancement:
The above mentioned lower than expected recovery rate translates into
a reduced credit enhancement of both Class A and Class B Notes.
In this respect Moody's notes that the advance rate at 28.6%
as of the latest reporting date is artificially high: Notesales
recoveries are applied to the waterfall with a six months lag from collection,
Moody's has taken into account this time lag assuming a portion
of these collections will be applied to repay Class A notes principal
at the next Payment Date. Still the level is higher than expected:
simulation of cashflows from the remaining pool in light of pool characteristics,
the higher cost of funding due to the imminent GACS step up date coupled
with the current outstanding balance of the notes are no longer consistent
with current ratings.
Moody's also notes that Class B deferral trigger, hit at the
Payment Date falling in May 2020, has been cured as of November
2020's Payment Date thanks to the trigger levels being higher than
the threshold: as such, payment of Class B interest falling
due at this IPD has also been paid together with Class B Notes deferred
interest.
In term of underlying portfolio, the reported GBV stood at EUR 788
million as of November 2020 down from EUR 1,046 million at closing.
The secured portion has slightly increased compared to closing as the
additional security is securing a previously unsecured portion of the
pool. Around 1.600 properties, representing around
30% of the assets backing the pool, have been sold and values
achieved at sale are slightly lower than anticipated on residential properties
while in line with our expectations on the other real estate categories.
NPL transactions' cash flows depend on the timing and amount of collections.
Measures imposed to contain the spread of the coronavirus directly and
severely affected the operability of judicial systems, creating
a backlog which has delayed NPLs securitisations' gross recoveries.
Due to the current circumstances, Moody's has considered additional
stresses in its analysis, including a 6 to 12-month delay
in the recovery timing.
The coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond
the end of the year. While persistent virus fears remain the main
risk for a recovery in demand, the economy will recover faster if
vaccines and further fiscal and monetary policy responses bring forward
a normalization of activity. As a result, there is a heightened
degree of uncertainty around our forecasts. Our analysis has considered
the effect on the cash flows generated from the recovery process on the
non-performing loans from a gradual and unbalanced recovery in
Italian economic activity.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Moody's has taken into account the potential cost of the GACS Guarantee
within its cash flow modelling, while any potential benefit from
the guarantee for the senior Noteholders has not been considered in its
analysis.
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:
Factors or circumstances that could lead to an upgrade of the ratings
include: (1) the recovery process of the non-performing loans
producing significantly higher cash-flows in a shorter time frame
than expected; (2) improvements in the credit quality of the transaction
counterparties; and (3) a decrease in sovereign risk.
Factors or circumstances that could lead to a downgrade of the ratings
include: (1) significantly lower or slower cash-flows generated
from the recovery process on the non-performing loans due to either
a longer time for the courts to process the foreclosures and bankruptcies,
a change in economic conditions from our central scenario forecast or
idiosyncratic performance factors. For instance, should economic
conditions be worse than forecasted and the sale of the properties generate
less cash-flows for the issuer or take a longer time to sell the
properties, all these factors could result in a downgrade of the
ratings; (2) deterioration in the credit quality of the transaction
counterparties; and (3) increase in sovereign risk.
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 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.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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
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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.
Francesca Pilu
Vice President - Senior 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
Michelangelo Margaria
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
