Italian NPL securitisations might be getting over Covid-19. June and July collections were above the pre-pandemic average and judicial proceeds have bounced back. Collections for the rest of 2020 should be more aligned with the pre-Covid picture.
Performance across transactions remains volatile, though: 13 out of 22 transactions registered a decrease in collections in July (compared to the six-month pre-Covid average). But collections have still shown an improving trend since the drastic drop in April (-58%), relative to the previous six-month average. May collections were still depressed, but June and July collections were about 6%-7% above the pre-Covid average.
Judicial collections in June-July were up 36% over the pre-Covid average, as courts reopened. Servicers are progressing with legal procedures that were previously dormant or very slow. Judicial collections accounted for 62% of proceeds in July.
Extra-judicial proceeds continued to be impacted by Covid-19 in July, showing a material degree of dispersion in overall performance. Thirteen out of 19 transactions registered lower collections from extra-judicial routes, while only five registered lower volumes from judicial resolutions compared to pre-Covid.
The pick-up in collections since June has also partly relied on a material increase in note sales (sales to third parties) – EUR 15m versus EUR 1m in April. This sharp increase is associated with an inherent degree of volatility in comparison with the trend of judicial proceeds.
“Since note sales are typically one-off transactions, the performance improvement could be a temporary boost rather than a stable recovery,” cautioned Rossella Ghidoni, associate director in the structured finance team of Scope Ratings and co-author of the latest Italian NPL collections report, out today. Even if the performance of the last two months does represent the beginning of a gradual recovery process, the contraction of the economy and the risk of a second Covid-19 wave by year-end adds an element of uncertainty, Ghidoni added.
Paula Lichtensztein, senior representative of Scope’s structured finance team and co-author of today’s report notes that while judicial and DPO strategies show a lower deviation from their historical average, the share of note sales on total proceeds almost doubled in June compared to the pre-Covid average, showing the largest deviation across recovery strategies. “Note sales strategies have so far negatively impacted transaction profitability. We will closely monitor future note sales to track whether this continues to be the case.”