Senior tranche issued in the dynamic SME loan securitization transaction is affirmed at AAA(ru.sf) due to collateral portfolio quality and credit enhancement mechanisms.
- The credit rating of the Collateralized Fixed Rate Notes due October 31, 2033 with the remaining nominal value RUB 308 mln.
The Junior Subordinated Loan was not rated by ACRA.
The notes were issued by “SPE TKB SME 1” LLC (hereinafter, the Issuer) as part of the securitization transaction of the portfolio of loans issued by TRANSKAPITALBANK (not rated by ACRA) (hereinafter, TKB, or the Bank) to small and medium-sized enterprises (SMEs).
The Issuer issued ruble denominated fixed rate notes. Proceeds from the issue were used to purchase the portfolio of ruble-denominated loans granted by the Bank to SMEs. Receivables acquired by the Issuer on SME loans form a part of the collateral of the notes. The main source of payments on the rated notes includes repayments from the underlying mortgage borrowers.
This transaction is the first issuance of collateralized notes secured by a portfolio of loans issued by the Bank to SMEs and the Bank’s first structured finance transaction that received a credit rating from ACRA. Credit Europe Bank Ltd. (BBB(RU), outlook Positive) acted as the Back-up Servicer, ready to service the portfolio in the case of TKB’s bankruptcy, withdrawal of its banking license, or untimely or poor services by the Bank. The transaction is dynamic and new loans may be included into the securitized portfolio instead of repaid loans within two years of the issue of the collateralized notes, subject to certain terms and conditions.
This transaction is not based on STC securitization standards and sets forth no coverage of any losses at the expense of the state budget and/or third-party guarantees.
The Issuer is a statutory defined bankruptcy remote special purpose entity operating in accordance with the requirements of Federal Law № 379-FZ dated December 21, 2013, “On Amending Certain Legislative Acts of the Russian Federation.”
The sole purpose of the Issuer is the acquisition of receivables arising from loans granted to legal entities as well as the issuance of collateralized notes.
The credit rating reflects ACRA's opinion regarding 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. At the first stage, as a result of the analysis of the Issuer’s securitized assets, ACRA calculated the probability of default for the securitized portfolio.
At the second stage, the portfolio metrics were used as input parameters in modelling the Issuer’s liability structure to determine the expected loss on the rated notes taking into account the impact of credit enhancement mechanisms, projected recovery rates, expected prepayments, and other factors influencing the distribution of cash flows in the transaction.
The estimated expected default probability of the assets in the initial and replenishment portfolios amounted to 8.2% with a standard deviation of 4.3% and 24.8% with a standard deviation of 7.7%, respectively. The portfolio monitoring conducted by ACRA on a monthly basis shows strong portfolio performance with cumulative default rate not exceeding 0.33% of the initial portfolio amount excluding buy-backs.
Issue structure analysis
The rated notes benefit from subordination, i.e. the priority of note payments is determined by their seniority against other obligations of the Issuer. The subordination of the rated notes is provided by the subordinated loan which was granted by the Originator to the Issuer to cover 27% of the collateral portfolio purchase price. Current level of subordination is estimated at the level of 86%. Additional credit support for the notes is provided by the Reserve Fund, formed by the note issuance date in the amount of 5.46% (currently – 88.6%) of the rated notes. Throughout the life of the transaction, the Reserve Fund is one of the main sources of liquidity for the compensation of short-term delinquencies of interest revenues for note payments, as well as for senior expenses. In certain situations, the Reserve Fund can also serve as a source of credit support for the rated notes. In particular, the Reserve Fund is included in the collateral of the notes, and in the case of the notes early repayment, at the request of noteholders, the Reserve Fund can be used to compensate insufficient principal proceeds for the full repayment of the nominal value of the notes to investors.
According to the transaction’s priority of payments, the cash flows will be distributed via a simple sequential payment waterfall. Within the replenishment period, the principal proceeds from the loans were used to purchase new assets that meet the eligibility criteria. However the replenishment period was terminated on 26.01.2020 following a breach of the transactional trigger (the ratio of revenue principal debt net of purchase price of new assets to the aggregate a) original issue amount of bonds and b) amount of the Junior loan at the level of less than 15%), all the principal proceeds acquired by the Issuer since then have been used to amortize the notes. No other liabilities of the Issuer can be repaid until full redemption of the rated notes. In ACRA's opinion, the structure of this transaction allows for the timely payment of coupons and repayment of the nominal value of the notes until their legal final maturity.
Key rating factors
- Low cumulative default rate within the securitized portfolio (excluding buy-backs): – 0.33% of the portfolio principal as of the transaction closing date;
- A significant Increase of the overall credit enhancement of the rated notes up to 98% due to amortisation of the Senior tranche with Junior tranche and Reserve Fund remaining at the their respective initial volumes.
Potential rating change factors
A negative rating action may be prompted by the developments that include the following:
- Deterioration of the macroeconomic environment beyond the stresses used in the rating analysis;
- Unforeseen legislative changes negatively affecting the transaction;
- Inability to replace the Issuer’s Account Bank upon its downgrade.
The definitive credit rating has been assigned under the national scale of the structured finance sector for the Russian Federation and is based on the 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 credit rating assigned to the collateralized notes issued by “SPE TKB SME 1” LLC was first published on December 21, 2018. The credit rating is to be withdrawn in accordance with and within the time limits stipulated by ACRA’s internal procedures subject to abovementioned expected full repayment of the notes. Otherwise, it is expected to be reviewed within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by TKB, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and TKB participated in the rating process.
No material discrepancies between the provided information and the data officially disclosed by TKB in its financial statements have been discovered.
ACRA provided no additional services to TKB or “SPE TKB SME 1” LLC. No conflicts of interest were identified in the course of the credit rating process.