Fitch Ratings has affirmed Hoist Italia Srl – Unipersonale’s asset-backed, residential and commercial special servicer ratings at ‘ABSS2+’, ‘RSS2’ and ‘CSS2’, respectively. Fitch assigned Stable Outlooks to all three ratings.
The affirmation follows a full review of the servicer’s operations and reflects its servicing proficiency across multiple asset classes.
Key Rating Drivers
Since Fitch’s previous review of Hoist Italia, there have been some changes to the ownership structure at the parent company, which have also led to changes in the board of directors and management at group level. As at the cut-off date, at the Italian entity level, the group CIO was acting country manager until 15 May 2023, when a new country manager was appointed.
In April 2022, the group divested Hoist Finance UK. Fitch understands that the decision was driven by regulatory changes to capital requirements for unsecured portfolios, as well as the group’s strategic reasons linked to market maturity. Historically, the agency considered Hoist branches to be operationally integral and strategically important to the parent’s business.
While group support and operational ties remain between the parent and Hoist Italia, the sale of the UK entity, which at the previous review held the largest percentage (26%) of the group’s assets under management (AUM), indicates that Fitch can no longer assume that group support to Hoist Italia, which currently holds 26% of the group’s AUM, is long term. Consequently, the parental support score of Fitch’s scoring matrices has deteriorated to the ‘2’ rating category from ‘1’ at the previous review.
Fitch notes that at the time of the review of the French entity in July 2022, there were 65 Hoist group employees based in the UK providing support functions, such as IT and analytics. Hoist group will continue to look at the UK market, as evidenced by the acquisition of a portfolio in April 2022.
Other strategies are broadly unchanged, focusing on profitability and growth. During the review period, Hoist Italia sub-serviced a portfolio of unlikely-to-pay (UtP) loans. 12 months after the portfolio was sub-serviced to Hoist Italia, 900 borrowers had been worked out, with approximately 400 of them “back to bonis”. A team of 10 people has the experience in UtP claims’ management, negotiating with the borrowers and applying applicable remedial actions for each specific borrower segment, which paves the way for the servicer to further grow its UtP portfolio service offering.
The senior management team comprises the country manager and seven direct reports (down from 10 at previous review). The team has an average of eight (nine) years company tenure and is supported by 14 (11) middle managers with an average of 10 years company tenure. The teams’ average company tenures remain commensurate with the ‘2’ and ‘1’ rating category, respectively, as at previous review.
In the 12 months to the cut-off date, four senior and middle managers left the business resulting in a Fitch-calculated annualised turnover commensurate with the ‘4’ rating category.
Hoist employs 297 (316) operational staff (excluding senior and middle management). The team’s average industry experience is commensurate with the ‘1’ rating category (up from ‘2’ at previous review), while the operational staff turnover was commensurate with the ‘2’ rating category for all three asset classes.
Hoist Italy follows Hoist Finance AB’s performance management processes, which include bi-annual appraisals and training programmes for operational staff. Hoist Italia has improved the e-learning platform and new virtual courses have been added for all staff. All mandatory courses are in an e-learning module and provided to all staff, with participation tracked by the Local People (HR) team. Despite this, Fitch notes that the average number of training hours (excluding on the job training, which increased) for new employees reduced since our previous review. Overall the training protocols remain commensurate with the ‘2’ rating category.
Hoist Italy operates a three-lines-of-defence corporate governance framework, which is commensurate with the ‘2’ rating category. Since our previous review, the corporate governance structure is unchanged. The first line includes documented policies and procedures, two-person checks, detailed reporting and dashboards. Quality checks are done by the quality assurance team, which is independent of the operational teams. The servicer has been increasing automation of alerts to facilitate team leaders’ monitoring of activities. We have marginally improved the scoring for the servicing activities quality control checks to reflect the increased number of recorded phone calls, which at this review was quoted as being between 88% and 93%.
The second line is the compliance and risk teams, which report to the group and work with the operational teams to ensure policies and procedures are clearly defined, training is provided to the operational staff and is in adherence with legal and regulatory requirements.
Structurally there have been no changes to the internal audit function, but the most recent internal audits resulted in one high and several medium and low risk findings, and as such, we view the scoring of the internal audit section of our scoring matrices as commensurate with the ‘3’ rating category.
At this review, we gave credit to the evidence of frequent audits by the master servicer, as well as the group’s ISO9001: 2015 certification. These audits identified some findings, none of which was identified as being high- or critical- risk. The overall external audit is commensurate with the ‘1’ rating category.
Hoist Italy’s loan administration processes and controls are broadly unchanged and commensurate with the ‘2’ rating category for all asset classes. The servicer is introducing new dialler technology, which will be fully integrated with the collections system. In 1Q23, Hoist released the first interactive voice recognition functionalities, while in 2Q23 the plan is to complete the contact centre management for all unsecured consumer products.
Since our previous review, Hoist introduced a new group policy for third-party outsourcing and set up a new team at group level, with local support to the branches (i.e. contract owners). Each vendor/agreement is recorded in a group system, while the day-to-day management of the relationship falls on the respective business areas. The overall score for vendor management marginally improved, but remains in the ‘2’ rating category.
As part of its analysis Fitch performed a file review of 10 cases of Hoist-managed portfolios. The results of the file review were satisfactory. The processes and controls for working out loans have not changed since our previous review, and remain commensurate with the ‘1’ rating category.
Hoist Italy’s servicing platforms are well integrated with the key proprietary system. The systems have effective automation; which includes payment allocation, reporting and business plan calculations. The technology infrastructure is constantly evolving, with future plans including a switch in the data warehouse to One Data Platform (user acceptance testing was expected in 2Q23), which will provide the servicer with daily updates of collection system data.
Hoist has robust disaster recovery and business continuity protocols, which are commensurate with the ‘1’ rating category, while cyber- and information-security protocols were scored as commensurate with the ‘2’ rating category.
The rating action commentary is based on information provided to Fitch as of end-December 2022, unless stated otherwise.
Source: Fitch Ratings