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GROGU SPV S.R.L. -- Moody's assigns a definitive rating to GROGU SPV S.R.L.

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Rating Action: Moody's assigns a definitive rating to GROGU SPV S.R.L.Global Credit Research - 15 Dec 2021EUR460 million Notes rated, relating to a portfolio of Italian NPL loansNOTE: On December 16, 2021, the press release was corrected as follows: The last sentence of the first paragraph in the Ratings Rationale section was changed to: “The senior notes are intended to be supported by the Italian government sponsored Garanzia Cartolarizzazione Sofferenze ("GaCS") guarantee.” Revised release follows.Madrid, December 15, 2021 -- Moody's Investors Service ("Moody's") has assigned definitive ratings to Notes issued by GROGU SPV S.R.L.....EUR460M Class A: Asset Backed Floating Rate Notes due January 2042, Assigned Baa1 (sf)Moody's has not assigned a rating to the EUR 37M Class B Asset Backed Floating Rate Notes due January 2042 and EUR 3M Class J Asset Backed Variable Return Notes due January 2042.RATINGS RATIONALEThe transaction is a static cash securitisation of non-performing loans ("NPLs") sponsored by Intesa Sanpaolo S.p.A. (70.3%) ("Intesa Sanpaolo", Baa1, P-2 / Baa2(cr), P-2(cr)) and BPER Banca S.p.A. (29.7%) ("BPER", Baa3, P-3 / Baa2(cr), P-2(cr)). The majority of the loans were originated by Unione di Banche Italiane S.p.A. ("UBI", Not Rated). UBI merged by absorption into its parent Intesa Sanpaolo (Baa1, P-2 / Baa2(cr), P-2(cr)) , following which UBI ceased to exist as separate legal entity. The senior notes are intended to be supported by the Italian government sponsored Garanzia Cartolarizzazione Sofferenze ("GaCS") guarantee.The assets supporting the Notes are NPLs with a GBV amount of EUR 3,076.5 million as of May 31, 2021. The gross collections from the 1st of June 2021("Economic Effective Date") to 31st October 2021 for Intesa Sanpaolo perimeter and to 30th November 2021 for BPER Banca's one amount to around EUR 33.5 million and they will be used to pay the cap premium and some upfront fees, the remaining amount will be used on the first payment date to repay the Notes.The portfolio will be serviced by Intrum Italy S.p.A. ("Intrum", Not Rated) and Prelios Credit Solutions S.p.A. ("PRECSO", Not Rated). The servicing activities performed by Intrum and PRECSO are monitored by the monitoring agent, Banca Finanziaria Internazionale S.p.A ("Finint", Not Rated) which will also act as master servicer at closing. Prelios Credit Servicing S.p.A. ("Prelios", Not Rated) has undertaken to act as master servicer in case of termination of the appointment of Finint as Master Servicer. If the servicer report is not available at any payment date, the continuity of payments for the Class A Notes should be achieved since the calculation agent would prepare the payment report based on estimates.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 secured loan, generates an estimate of: (i) the timing of collections; and (ii) the collected amounts, which are then 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 portfolio composition: (a) 54.3% of the loans in term of the GBV amount are secured: 50.7% by a first lien mortgage and 3.6% by a junior lien; (b) in relation to the secured portfolio residential properties represent around 44.5% of total market value, however, the weighted average Loan to Value ratio is around 118%, higher than the market average; (c) almost all properties relating to first lien mortgage have a third party valuation dating back to no later than 2020; (ii) for 74.4% of the GBV a due diligence has been performed covering the entire universe of borrowers with a GBV higher than one million, (iii) Class B margin is set at 9.5% and the Class B coupon is postponed to a more junior position in the waterfall should cumulative recoveries rate be lower than 90% of the expected cumulative recovery rate according to the initial business plan anticipated by the special servicer; and (iv) special servicing fees are linked to the performance of the deal thus aligning special servicer interest to the interest of the Noteholders.However, the transaction has several credit negative features, such as: (i) higher borrower concentration and more complex and illiquid assets than in previous UBI securitizations as this is the tail of a larger UBI legacy portfolio; (ii) the unsecured portion of the pool represents around 45.7% of the GBV amount of the portfolio with a 5.1 years seasoning, i.e. unsecured loans have usually a significantly lower recovery rate than a secured loan; (iii) secured loans representing around 61% of the total market value amount of the secured portfolio are still in the initial stage of the legal proceeding, which means that cash flows from these loans will likely be generated at a later time; and (iv), land represents 6.2% of the total property value and 7.3% refers to hotels, which are usually less liquid than other property types.Reserve fund: The transaction benefits from a cash reserve equal to 4.0% of the Class A Notes' balance (corresponding to around EUR 18.4 million at closing) that amortizes in line with the Class A Notes and is funded by a limited recourse loan granted by Intesa Sanpaolo and BPER. The cash reserve is replenished immediately after the payment of interest on the Class A Notes and provides mainly liquidity support to the Class A Notes.Hedging: The transaction is hedged against fluctuations of the three-month EURIBOR rate, to which the Notes are indexed. In particular, Class A Notes benefit from an interest rate cap agreement linked to three-month EURIBOR with Intesa Sanpaolo (Baa1, P-2 / Baa2(cr), P-2(cr)) acting as cap counterparty. The cap counterparty will pay if three-month Euribor is between 0.10% and 0.85% at closing and moving up to 1.60 % in 2033. The notional of the interest rate cap agreement is equal to the outstanding balance of the Class A Notes at closing and is decreasing over time with predefined amounts. Class A Notes are expected to be hedged by combination of the cap agreement and the contractual cap on Class A coupon for most of the Notes life, nonetheless Class A Notes at greater extent, could be still be exposed to Interest rate risk if the Notes amortize slower that the cap notional schedule.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.Most of the collections are paid directly into the issuer collection account at Intesa Sanpaolo (Baa1, P-2 / Baa2(cr), P-2(cr)), with a transfer requirement if the rating of the account bank falls below Baa3.The principal methodology used in this rating was the "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 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 rating:Factors that may cause an upgrade of the rating of the Notes include significantly better than expected performance of the pool together with an increase in credit enhancement of Notes.Factors that would lead to a downgrade of the rating include: (i) increased counterparty risk leading to potential operational risk of (a) servicing or cash management interruptions and (b) the risk of increased swap linkage due to a downgrade of a swap counterparty ratings; and (ii) economic conditions being worse than forecast resulting in higher arrears and losses.REGULATORY DISCLOSURESFor 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 rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is 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. Alberto Barbachano VP - Senior Credit Officer 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 Gaby Trinkaus, CFA VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Espana, S.A. 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