OREANDA-NEWS. August 03, 2015.  Fitch Ratings has downgraded Venus-1 Finance S.r.l.'s class A, B, C and D floating rate notes due 2019 and affirmed class E as follows:

EUR15.1m class A (IT0004148026) downgraded to 'Csf' from 'CCCsf'; Recovery Estimate (RE) 10%
EUR8.2m class B (IT0004148034) downgraded to Csf' from 'CCCsf'; RE 0%
EUR6.3m class C (IT0004148042) downgraded to 'Csf' from 'CCsf'; RE 0%
EUR9.1m class D (IT0004148059) downgraded to 'Csf' from 'CCsf'; RE 0%
EUR6.5m class E (IT0004148067) affirmed at 'Csf'; RE 0%

The transaction is the securitisation of two portfolios of non-performing loans (NPLs), Monviso 1 and Monviso 2, both originated by Sanpaolo IMI Group (now Intesa Sanpaolo S.p.a.; BBB+/Stable/F2) and acquired in 2005 by ABN Amro Bank N.V. (A/Stable/F1). At the cut-off date in June 2006, the two portfolios comprised 21,911 borrower positions for a total gross book value (GBV) of EUR303.2m. The aggregate portfolio consisted mainly of unsecured NPLs (86% of GBV), with the remaining 14% made up of mortgage secured NPLs.

KEY RATING DRIVERS
The downgrades reflect the ongoing decline in the pace of collections combined with the elevated cost margin. These factors leave very little net recoveries with which to service the notes, let alone repay principal. No amortisation has occurred for two years, and without an imminent increase in collections, the release of funds tied up in the courts or a reduction in costs, it is unlikely that further principal repayments will occur by note maturity.

Gross collections since closing totalled EUR83.8m, largely in line with Fitch's revised base case. However, higher than expected costs (including a servicer remuneration scheme which envisages a fee on outstanding GBV and collections) continue to weigh on issuer available funds, which have been further depressed by a slow-down in the pace of collections.

While the July 2015 servicer data on the underlying Monviso 1 and 2 portfolios has not yet been published, a note statement confirmed that no principal payment on the notes occurred in July 2015. Only 1% of the class A notes has been repaid since July 2012. The liquidity facility (LF), which covers interest shortfalls on the class A to D notes, was drawn down to meet class D coupons in January 2015, while the class E notes were behind with their interest by EUR0.7m.

Rising arrears on junior note interest (which unusually ranks ahead of principal in all circumstances) combined with likely drawings on the LF will diminish the amount of principal payments that can be made, reflected in the downgrades as well as the 10% Recovery Estimate on the class A notes (the latter not confined by bond maturity).

The servicing agreements for the Monviso servicer expired in 2015. A short-term extension until December 2015 was agreed by noteholders to allow time to renegotiate terms. Fitch understands that there is a proposal to extend the agreement until bond maturity in 2019, with no clarity regarding recoveries beyond that point. Negotiation could see a change in servicer remuneration, although Fitch has no visibility on actual costs incurred servicing the portfolio, and therefore cannot assume noteholders have bargaining power.

The transaction continues to show high concentration in unsecured loans (92%) compared with secured; in claims to corporates (47%) compared to individuals; and in claims in the south of Italy (45%). These exposures all have lower historical recovery rates (RRs) than the overall portfolio. However, 69% of remaining claims (by number) are for EUR10,000 or less, with smaller loans generally achieving higher RRs.

The overall RR on resolved loans (94.5%) is satisfactory. However, it is the slow pace of collections combined with high costs and delays in the Italian courts that are responsible for the weak creditworthiness of the notes. With four years remaining until bond maturity, Fitch views note default as all but inevitable.

RATING SENSITIVITIES
Should recovery volumes increase significantly from recent levels, e.g. as the result of a cost reduction, the Recovery Estimate on the class A could be revised upwards.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the
performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The sources of information used to assess these ratings were the issuer, servicer, and periodic cash management and servicer reports.