April 24, 2020 / 2:16 PM / a month ago

UPDATE 1-Moody's downgrades Italian bad loan deals as COVID-19 hits recoveries

(Adds details and background)

MILAN, April 24 (Reuters) - Moody’s on Friday said it had downgraded or placed on review for downgrade 11 Italian bad loan securitisation deals, citing the impact of the new coronavirus pandemic on the country’s economy and investor sentiment.

Italy is one of the countries hardest hit by the pandemic. Looking to contain the spread of the virus, the government introduced sweeping curbs in March, shutting schools, businesses and courts nationwide.

Court closures have been hampering loan recoveries and Moody’s said the downgrades reflected the deals’ underperformance against the credit rating agency’s initial assumptions.

Over the past four years, Italian banks have offloaded more than 180 billion euros ($194 billion) of bad debts, helped by a state guarantee scheme (GACS) that cushioned losses from disposals.

The first such deal dates back to 2016, when Italy’s biggest bank in the south, Banca Popolare di Bari, sold 480 million euros in bad loans in a securitisation deal that drew on the state guarantee to obtain better prices.

Popolare di Bari in December was placed under special administration by the government, which is in the process of rescuing it.

Moody’s downgraded two notes from the Popolare Bari NPLs 2016 securitisation and the following Popolare Bari NPLs 2017 deal, citing slower-than-anticipated cash-flows.

The underperformance of the GACS-backed deals, which spans several years, increases the risk for Italian taxpayers who may be called on to foot the bill some time in the future.

Moody’s also placed some deals on review for downgrade to “reflect the slower and potentially lower anticipated cash-flows in the transactions” given disruptions to the judicial system and the economic disruption in Italy where the government expects an 8% drop in domestic output this year.

The deals affected by Moody’s actions are Belvedere SPV, Pop NPLs 2018, Aqui SPV, BCC NPLs 2018, Prisma SPV, BCC NPLs 2019, Maggese, Riviera NPL and Siena NPL 2018.

The latter is one of the biggest bad loan transactions in Italy, which helped bailed-out Monte dei Paschi di Siena offload 24 billion euros in unpaid loans. ($1 = 0.9260 euros) (Reporting by Gianluca Semeraro, editing by Valentina Za and Mike Collett-White)

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