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April 15 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Prelios Credit Servicing SpA's (PRECS) Italian Residential and Commercial Mortgage Special Servicer Ratings at 'RSS2' and 'CSS2'.
In October 2013 Prelios SpA (Prelios) finalized the repurchase of all shares in PRECS held by DGAD International Sarl (DGAD) - ultimately owned by Credit Agricole Corporate and Investment Bank. This change returns full ownership and control of PRECS to Prelios and allows the servicer to benefit from group resources and expertise. It has also resulted in the recent appointment of an experienced CEO and a new board of directors, providing the company with clear direction at a strategic level going forward.
In line with the change in ownership PRECS has taken some key steps to restructure and reposition the servicer within the market. The servicing teams have been restructured to support PRECS' focus on diversifying and expanding the breadth of the services offered to clients. Where appropriate, the servicer can outsource activities to Prelios entities, benefitting from the group's support and real estate functions. The restructure was on going at the time of review, therefore Fitch cannot yet make a full assessment of its operational impact.
The affirmations reflect PRECS' ability to manage the workout process for defaulted loans. PRECS continues to use a wide variety of workout methods, both non-judicial and judicial, to achieve the maximum possible recoveries. Although the company has gone through a period of considerable change, recovery rates and timelines are showing a positive trend.
PRECS continues to develop the bespoke servicing platform, with the support of group resources. Fitch considers the servicing system to be robust, with a solid level of automation and control. In the past 12 months a new interface has been developed to improve the efficiency of loan boarding and due diligence activities, reducing timelines and improving data quality.
The ratings also reflect the high staff turnover rate which has been reported for the second successive year. Although the structural changes within the company are likely to be the main driver of high staff turnover, Fitch expects reduction and stabilisation in the medium term. Average reported training hours per employee continue to improve - although this remains below the average seen across rated peers. Fitch takes a positive view of the improvements in training provided, particularly to loan asset managers.
The financial support of its unrated parent, together with the performance of the servicer and Prelios over the past 12 months, are taken into consideration in the ratings' affirmation. Prelios' financial situation has improved following a capital increase and debt renegotiation plan. PRECS continues to focus on the servicer's financial position through cost control and new third party business. Fitch takes a positive view of the actions taken by the servicer but would like to see a consistent positive financial trend.
At 31 October 2013, PRECS managed a non-performing loan (NPL) portfolio with a gross book value (GBV) of EUR4.5bn (end 2012: EUR6.9bn), 96% of which is securitised (end 2012: 99%).
As part of the share repurchase agreement between Prelios and DGAD the special servicing rights on three DGAD owned portfolios were transferred away from PRECS. Although this has resulted in a significant reduction in special servicing assets under management, Fitch recognizes that PRECS has been retained as master and corporate servicer on the same portfolios. The company had also signed a number of new mandates at the time of review.
Fitch employed its global servicer rating criteria in analysing the servicer's operations and financial condition, with the former criteria including a comparison against similar Italian servicers as part of the review process.