The expected credit rating of the senior tranche to be issued by LLC “SFE DVC-1” in this securitization transaction backed by a portfolio of loans has reached eBBB-(ru.sf) due to the satisfactory credit quality of the securitized portfolio and presence of a special-purpose reserve in the transaction structure.
Ratings
- The expected credit rating eBBB-(ru.sf) has been assigned to the planned issue of asset backed securities of Class “A” Notes with an annual fixed interest rate of 11.5%. Legal final maturity of the notes — June 15, 2024, issue volume — RUB 6 bln.
- The junior tranche in the form of Class “B” notes has not been rated by ACRA. This tranche is present in the transaction solely as a mechanism of capturing the excess spread of LLC “SFE DVC-1” and does not provide any credit enhancement to the senior tranche of Class “A.”
Transaction
Within the framework of the planned securitization transaction, LLC “SFE DVC-1” (hereinafter, the Issuer) will issue the notes secured by a portfolio of large corporate loans. The expected weighted-average credit rating of the companies in the Issuer’s portfolio has reached the level of BB+(RU). As part of the transaction, the Issuer also plans to acquire monetary claims to LLC «Special Purpose Vehicle “DVC-1”» (hereinafter, Special purpose vehicle) whose purpose is to manage a portfolio of federal loan obligations.
The receivables on loans and monetary claims acquired by the Issuer will form the collateral of the notes. This collateral will be the source of financing the fulfillment of obligations under the Issuer's bonds. The structure of the transaction also includes a special-purpose reserve of 5.75% of the total nominal value of the bonds.
The organizer of the transaction is LLC “Da Vinci Capital” (hereinafter, the Fund), which, through its subsidiary LLC “Service Agent” (hereinafter, Servicer, or Originator), performs the functions of originator, performs loan servicing, and acts as a guarantor to the Issuer for 20% of the principal balance of bonds.
The transaction provides for a backup servicing agent represented by PJSC Sovcombank (A(RU), outlook Stable), ready to assume all the functions of servicing loans in the event of Servicer insolvency.
All payment receipts on the Issuer's assets are received on the Issuer's deposit account with Sberbank (AAA (RU), outlook Stable). The Issuer's reserve bank account is not provided for by the transaction structure.
The transaction is limitedly dynamic, with the possibility for the Issuer to purchase additional cash claims from the Servicer and the Special purpose vehicle from entities who are already debtors of the Issuer before the amortization of bonds begins. The inclusion of new assets into the Issuer’s portfolio is not permitted at any time over the entire term of the notes. Note amortization begins from the third coupon period.
This transaction is the first structured finance transaction secured by a portfolio of loans issued by the Fund, as well as the first structured finance transaction of the Fund which has been assigned an expected credit rating by ACRA.
In the event of a significant deviation in the parameters of the transaction from the parameters registered with the Bank of Russia, the final credit rating cannot be assigned.
The transaction is not based on the principles of self-certification or minimization of independent analysis in the STC securitization framework, and it does not provide for any state budget support and/or third-party guarantees.
Issuer
The issuer is a bankruptcy remote special purpose vehicle operating in accordance with the requirements of Federal Law No. 379-FZ dated December 21, 2013, “On Amending Certain Legislative Acts of the Russian Federation.” The sole business of the Issuer is the acquisition of receivables arising from the loans and issue of asset backed securities.
At the time of assigning the expected rating, the organizers of the transaction did not provide the Issuer's accounting statements. Considering that the Issuer was formed in 2016, ACRA will check the Issuer for the presence of debts before assigning the final credit rating to the bonds.
Special purpose vehicle
The presence of this company in the structure of the transaction is necessary due to the absence of the Issuer's right to buy securities.
LLC «Special Purpose Vehicle “DVC-1”» is a company established in accordance with the Civil Code of the Russian Federation, Federal Law No. 14-FZ “On Limited Liability Companies” and other regulatory acts of the Russian Federation, specifically for participation in this securitization transaction.
Rating components
The expected credit rating reflects ACRA's opinion on the expected losses posed to investors by the notes’ legal final maturity. In accordance with the “Methodology for Assigning Credit Ratings to Structured Finance Instruments and Obligations on the National Scale for the Russian Federation,” ACRA conducted its analysis in two stages.
In the first stage, ACRA analyzed likely scenarios of securitized asset maturity, the probability of asset default, and the recovery rate. In the second stage, the results of the portfolio analysis were used as input parameters in modelling the Issuer’s liability structure to determine the expected loss on the rated notes.
Portfolio
Expected contents of the collateral:
1. Two loans (large corporate loans), planned to be issued by the Servicer in this transaction:
I. Loan with a nominal value of RUB 1,550 mln with a fixed interest rate of 13.8% and five-year maturity.
II. Loan with a nominal value of RUB 3,250 mln with a fixed interest rate of 14.5% and five-year maturity.
The loans represent senior secured debt of the companies.
Taking into account the concentration of the Issuer’s portfolio, the notes’ final credit rating will be assigned only when ACRA credit ratings are available for the companies whose loans form the Issuer’s securitized portfolio.
2. Monetary receivables to the Special purpose vehicle who owns the federal loan bonds. The minimum amount of monetary receivables is 19.946% of the notes’ nominal value.
3. The funds of the Issuer’s collateral account in Sberbank, to which the Issuer’s payments on loans and monetary receivables will be directed.
The collateral portfolio also includes special reserve funds in the amount of 5.75% of the notes’ nominal value.
The most significant factors that determined the notes’ expected losses are:
- Expected weighted-average credit ratings of the companies (borrowers) at BB+(RU);
- Special purpose reserve in the structure of the transaction that can cover two coupon periods of the Issuer's payments in the case of a delay in payments on assets in the Issuer's collateral;
- Expected recovery rates on loans at 55%;
- Minimum amount of monetary claims to the Special purpose vehicle (federal loan bonds holder) at 19.946%;
- Originator guarantee on 20% of the outstanding principal on every monetary receivable;
- Absence of junior tranche credit enhancement in the transaction. The junior tranche acts as a mechanism to capture the excess spread of the Issuer.
Issue
The rated notes do not benefit from credit enhancement provided by the subordinated (junior) tranche to the senior tranche, i.e. the priority of note payments is determined by their seniority to the Issuer’s obligations compared to other obligations. The Class “B” tranche in the transaction is present exclusively as a mechanism to capture the excess spread.
The reserve fund provides the notes with additional credit enhancement that will amount to 5.75% of the rated securities on the date of issue. During the entire life of the transaction, the reserve fund will be one of the main sources of liquidity to cover potential short-term delinquencies in senior note interest payments and the Issuer’s senior expenses. In certain situations, the reserve fund may also be a source of credit enhancement for the notes, i.e. in some scenarios, the reserve fund forms part of the security collateral available to compensate principal losses. In particular, in the case of early repayment of the notes at the request of noteholders, the reserve fund can be used to compensate insufficient principal proceeds in order to fully repay the rated notes (full principal and interest accrued).
All portfolio proceeds including interest payments after the deduction of transaction expenses and the coupon due under Class “A” notes will be applied to repay the senior tranche. Other obligations of the Issuer will not be repaid until the rated notes are fully repaid.
Potential outlook or rating change factors
Due to the absence of credit enhancement for rated notes, the final credit rating will directly depend on the credit quality of collateral.
A negative rating action may be prompted by developments that include the following:
- Downgrade in credit ratings of the companies whose loans make up the Issuer’s collateral;
- Deterioration of the macroeconomic conditions beyond the stress scenarios used in the rating analysis
- Partial collateral loss;
- Legislative changes negatively affecting the transaction.
A positive rating action may be prompted by developments that include the following:
Upgrade in credit ratings of the companies whose loans make up the Issuer’s collateral.
Regulatory disclosure
The principal methodology used to assign the expected credit rating was ACRA’s Methodology for Assigning Credit Ratings to Structured Finance Instruments and Obligations on the National Scale for the Russian Federation and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The expected credit rating was assigned to the notes issued by LLC “SFE DVC-1” for the first time. ACRA expects to assign the final credit rating within 180 days following the publication date of this press release.
The expected credit rating was assigned based on the data provided by LLC “Da Vinci Capital,” information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and LLC “Da Vinci Capital” participated in the rating process.
No material discrepancies between the provided information and the data officially disclosed by LLC “SFE DVC-1” in its financial statements have been discovered.
ACRA provided no additional services to LLC “Da Vinci Capital” or LLC “SFE DVC-1.” No conflicts of interest were identified in the course of the credit rating process.
