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Rating Action:

Moody's downgrades two notes in Popolare Bari NPLs 2016 S.r.l.

11 Jun 2021

Madrid, June 11, 2021 -- Moody's Investors Service ("Moody's") has today downgraded the ratings of two notes in Popolare Bari NPLs 2016 S.r.l. These downgrades reflect 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.

....EUR126.5M Class A Notes, Downgraded to Ba2 (sf); previously on Jul 22, 2020 Downgraded to Ba1 (sf)

....EUR14M Class B Notes, Downgraded to Caa2 (sf); previously on Jul 22, 2020 Downgraded to B3 (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:

Popolare Bari NPLs 2016 S.r.l. was underperforming the special servicer's original projection already before coronavirus outbreak in first quarter 2020. The portfolio is mainly concentrated in the South of Italy and Islands (66% as of November 2020).

Borrower concentration: about 12% of the pool by Gross Book Value is concentrated on the top 10 obligors which increases potential performance volatility.

Industrial concentration: about 32% of the secured pool is backed by industrial properties, a higher exposure than its peers. Recoveries from this type of properties are volatile, especially for big industrial buildings.

Cumulative gross collections represent 73% of the original GBV as of November 2020. As of November 2020, the Cumulative Collection Ratio was at 76%, below the limit for a subordination event at 90%. A low Cumulative Collection Ratio as in this case means collections are coming slower than anticipated. The NPV Cumulative Profitability Ratio was at 102%. NPV Cumulative Profitability ratio is the ratio between the Net Present Value of collections for exhausted debt relationship, discounted at 3.5% yield, against the expected collections as per the original business plan.

The latest business plan received in 2021 contemplates cumulative gross collections below the 41% of the GBV at closing contemplated in the original business plan. Moody's expects that transaction will have additional difficulty improving underperformance as it was already behind servicer's original projections before the Covid outbreak.

-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 of Class A at 21.8% as of November 2020 is higher than the 21.6% observed in May 2020. This is the ratio between the outstanding amount of the Class A and the gross book value. This is the first reversal in the reduction of advance rate since closing. Simulation of cashflows from the remaining pool in light of portfolio characteristics, coupled with the outstanding balance of the Class A notes are no longer consistent with current rating.

In terms of the underlying portfolio, the reported GBV stood at EUR 351.96 million as of November 2020 down from EUR 479.89 million at closing. Out of the approximately EUR 120 million reduction of GBV since closing, principal payments to Class A has been in the range of EUR 50 million. The secured portion has decreased to 56.8% from 63.4% at closing. Around 650 properties, representing around 30% of the assets backing the initial pool by value, have been sold at 61% of the updated property values on average but showing a decline for properties sold since 2018. Overall profitability for this calculated as the ratio between recoveries and write-offs (total recoveries plus losses) is 36%, in the low range of Italian NPL securitisations we rate.

Despite improvements after lowest collections suffered during second quarter of 2020, the collections from June until November 2020 were still more than 10% below the average of semiannual collections since closing.

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.

Unpaid interest on Class B is EUR 0.8 million as of November 2020, since the subordination event was hit in May 2020. Cumulative collections net of legal and procedure costs represent 76% of the original business plan, while the subordination event applies for cumulative net collections below 90%.

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 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 performance of consumer assets from a gradual and unbalanced recovery in the 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.

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: (i) the recovery process of the non-performing loans producing significantly higher cash-flows in a shorter time frame than expected; (ii) improvements in the credit quality of the transaction counterparties; and (iii) a decrease in sovereign risk.

Factors or circumstances that could lead to a downgrade of the ratings include: (i) 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; (ii) deterioration in the credit quality of the transaction counterparties; and (iii) 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_1263068.

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 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.

Antonio Tena
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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