Morningstar DBRS Confirms Credit Rating on Palatino SPV S.r.l.'s Class A Notes at BBB (sf), Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit rating on the Class A Notes issued by Palatino SPV S.r.l. (the Issuer) at BBB (sf). The trend on the credit rating remains Stable.

The transaction represents the issuance of Class A, Class B1, Class B2, and Class J Notes (collectively, the Notes). The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before its final maturity date in December 2045. Morningstar DBRS does not rate the Class B1, Class B2, and Class J Notes.

As of the 31 July 2020 cut-off date, the gross book value (GBV) of the portfolio was EUR 865.3 million and comprised nonperforming loans that were acquired by Banca CF Plus S.p.A. and originated by different Italian banks, including Banca Carige S.p.A. representing 58.3% of the total GBV and Credito Valtellinese SpA (Creval) representing 17.1% of the total GBV.

This transaction represents the restructuring of the Notes originally issued to finance the aforementioned acquisition in the context of a securitisation transaction following the standard provisions under the Italian securitisation law (Law n. 130/1999).

Special Gardant S.p.A. (the Special Servicer) services the receivables. Master Gardant S.p.A. acts as the master servicer, while Banca Finanziaria Internazionale S.p.A. operates as the backup servicer.

CREDIT RATING RATIONALE
The credit rating confirmation follows a review of the transaction and is based on the following analytical considerations:
-- Transaction performance: An assessment of portfolio recoveries as of April 2025, focusing on (1) a comparison between actual collections and the Special Servicer's initial business plan forecast, (2) the collection performance observed over recent months, and (3) a comparison between the current performance and Morningstar DBRS' expectations.
-- Updated business plan: The Special Servicer's updated business plan as of January 2025, received in May 2025, and the comparison with the initial collection expectations.
-- Portfolio characteristics: Loan pool composition as of April 2025 and the evolution of its core features since issuance.
-- Transaction liquidating structure: The order of priority entails a fully sequential amortisation of the Notes (i.e., the Class B1 Notes will begin to amortise following the full repayment of the Class A Notes, the Class B2 Notes will begin to amortise following the full repayment of the Class B1 Notes, and the Class J Notes will amortise following the repayment of the Class B2 Notes). Additionally, interest payments on the Class B1 and Class B2 Notes become subordinated to principal payments on the Class A Notes if either the cumulative net collection ratio or the net present value cumulative profitability ratio are lower than 100%. These triggers had not been breached on the June 2025 interest payment date, with actual figures at 106.1% and 126.0%, respectively, according to the Special Servicer.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure covering potential interest shortfalls on the Class A Notes and senior fees. The cash reserve target amount is equal to 4.5% of the Class A Notes' principal outstanding and is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest payment report from June 2025, the outstanding principal amounts on the Class A, Class B1, Class B2, and Class J Notes were EUR 50.7 million, EUR 11.0 million, EUR 12.4 million, and EUR 6.3 million, respectively. As of the June 2025 payment date, the balance on the Class A Notes had amortised by 62.4% since issuance and the current aggregated transaction balance was EUR 80.4 million.

As of April 2025, the transaction was performing above the Special Servicer's initial business plan expectations. The actual cumulative gross collections equalled EUR 118.8 million, whereas the Special Servicer's initial business plan estimated cumulative gross collections of EUR 112.9 million for the same period. Therefore, as of April 2025, the transaction was overperforming by EUR 5.9 million (5.2%) compared with the initial business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections of EUR 82.2 million for the same period at the BBB (sf) stressed scenario. Therefore, as of April 2025, the transaction was performing above Morningstar DBRS' initial stressed expectations.

Pursuant to the requirements set out in the receivable servicing agreement, the Special Servicer delivered an updated portfolio business plan in May 2025.

The updated portfolio business plan, combined with the actual cumulative gross collections of EUR 116.1 million as of January 2025, results in a total of EUR 218.9 million, which is 5.4% lower than the total gross collections of EUR 231.5 million estimated in the initial business plan. As evidenced by the positive profitability, accounts were closed earlier and with higher cash flow compared with initial expectations. Conversely, expectations on the still opened exposure have been revised downwards.

Excluding actual collections, the Special Servicer's expected future collections from May 2025 account for EUR 99.1 million. The updated Morningstar DBRS BBB (sf) credit rating stress assumes a haircut of 18.3% to the Special Servicer's updated business plan, considering future expected collections.

The final maturity date of the transaction is in December 2045.

Morningstar DBRS' credit rating on the applicable class addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at (16 May, 2025) https://dbrs.morningstar.com/research/454196.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: Master European Structured Finance Surveillance Methodology (4 February 2025), https://dbrs.morningstar.com/research/447080.

Other methodologies referenced in this transaction are listed at the end of this press release.

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for this credit rating include the Issuer, the Special Servicer and Master Gardant, which comprise, in addition to the information received at issuance, the updated business plan as of January 2025, the payment report as of June 2025, and the semiannual servicer report as of April 2025.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit rating, Morningstar DBRS was supplied with third-party assessments. However, this did not affect the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

Morningstar DBRS does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 14 June 2024 when Morningstar DBRS confirmed its credit rating on the Class A Notes at BBB (sf) with a Stable trend.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):
-- Recovery rates used: Cumulative base-case recovery amount of approximately EUR 81.0 million at the BBB (sf) stress level, a 5% and 10% decrease in the base-case recovery rate.
-- Morningstar DBRS concludes that a hypothetical decrease in the recovery rate by 5%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (sf).
-- Morningstar DBRS concludes that a hypothetical decrease in the recovery rate by 10%, ceteris paribus, would lead to a downgrade of the Class A Notes to B (high) (sf).

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: William Taliento, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 25 June 2021

DBRS Ratings GmbH
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Rating European Nonperforming and Reperforming Loans Securitisations (11 April 2025), https://dbrs.morningstar.com/research/451813
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196
-- Master European Structured Finance Surveillance Methodology (4 February 2025), https://dbrs.morningstar.com/research/447080
-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583
-- European RMBS Insight Methodology (8 May 2025), https://dbrs.morningstar.com/research/453613
-- European CMBS Rating and Surveillance Methodology (4 March 2025), https://dbrs.morningstar.com/research/449278
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.