(Repeat for additional subscribers)
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.