The definitive credit rating of the senior tranche issued in this static multi-originator RMBS transaction is AAA(ru.sf) due to the credit enhancement provided to the senior tranche by the subordinated (junior) tranches of notes, excess spread, reserve fund, as well as the satisfactory credit quality of the securitized portfolio.
Ratings
- The definitive ААА(ru.sf) rating has been assigned to the issue of Exchange-traded Residential Mortgage-Backed Fixed Rate Notes. The final maturity of the notes is May 28, 2034, and the issue volume is RUB 5.622 bln.
- The Junior Notes, which are exchange-traded mortgage-backed residential B class notes, have not been assigned ratings.
Transaction
The class A exchange-traded mortgage-backed notes were issued by LLC “MA TB-1” (hereinafter, the Issuer) as part of the securitization of the portfolio of mortgage loans issued by Tinkoff Bank (A(RU), outlook Stable) (hereinafter, Tinkoff Bank, or the Bank).
The Issuer issued ruble-denominated fixed rate notes. The Issuer then plans to use the proceeds from the issuance to purchase a portfolio of mortgage loans originated by Tinkoff Bank. The receivables on the mortgage loans acquired by the Issuer will be included in the mortgage collateral of the notes. The main source of payments on the rated notes stems from repayments from the underlying mortgage loans.
This transaction is the first non-agency MBS issue backed by a portfolio of mortgage loans issued by Tinkoff Bank and Russia’s first multi-tranche securitization of mortgage loans secured by electronic mortgage certificates. The securitized portfolio consists of Russian residential mortgage loans serviced by the Bank. AO Raiffeisenbank (AAA(RU), outlook Stable) will act as the backup servicer, ready to assume all the functions of portfolio servicing in case Tinkoff Bank does not fulfill its contractual obligations, goes bankrupt, or loses its banking license. The transaction is static: no new loans will be included in the securitized portfolio until the notes’ maturity.
The transaction is not part of the RMBS Factory program (JSC "DOM.RF", AAA(RU), outlook Stable) or organized according to STS securitization standards, and it sets forth no coverage of any losses at the expense of the government budget and/or external guarantees from third parties.
Issuer
The Issuer is a Mortgage Agent, a statutory defined bankruptcy remote special purpose vehicle incorporated as a limited liability company in compliance with the statutory requirements outlined in Federal Law No. 152 “On Mortgage Backed Securities.” The Issuer’s only two purposes are the acquisition of receivables arising from the mortgage loan and/or mortgage certificates and the issuance of mortgage backed securities.
Rating components
The definitive credit rating reflects ACRA’s opinion on the expected losses investors are exposed to by the notes’ legal final maturity. In accordance with the Methodology for Assigning Credit Ratings to Structured Finance Instruments and Obligations under the National Scale for the Russian Federation, ACRA conducted its analysis in two stages. Firstly, ACRA estimated that the expected loss (EL) of the mortgage loan portfolio is equal to 2.54% and the GRASP AAA EL is equal to 19.75%. Secondly, the portfolio metrics were used as input parameters in modeling the structure of the Issuer’s obligations and determining the expected losses on the rated notes, taking into account the impact of credit enhancement mechanisms, expected prepayments and other factors impacting cash flow distribution in the transaction.
Mortgage portfolio
The most significant factors that determined the portfolio’s expected losses are:
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High excess spread stemming from the substantial difference between the weighted average interest rate on the asset portfolio and the size of the coupon for the rated notes;
- Extremely low weighted average loan-to-value ratio 36.38%;
- Short weighted average seasoning of the loans comprising the securitized portfolio: 13 months;
- Limited historical data on the debt service quality and recovery rates on the credit product included into the securitized portfolio, as the mortgage backed lending was started in 2018;
- Hybrid nature of assets in the securitized portfolio, which combines consumer and mortgage lending components;
- Absence of official income verification via 2-TIPI and/or 3-TIPI forms for 100% of the borrowers in the securitized portfolio;
- Presence of borrowers with negative credit histories in the securitized portfolio.
Issue
The rated notes benefit from subordination, i.e. the priority of payments for the class A notes is determined by their seniority against the Issuer’s obligations for the B class notes, which are subordinated to class A notes. The aggregate volume of credit enhancement for the rated class A notes, formed by tranche B, is 13.5% of the asset portfolio. The notes benefit from additional credit enhancement in the form of the Special Purpose Reserve Fund (SPRF), which was created on the issue date and amounts to 4% of the issue volume of tranches A and B. The SPRF may be drawn down in proportion to the par value of the rated notes, subject to the floor amount equal to 1% of the initial issue volume of the class A and B notes and provided that the drawdown criteria listed in the issue documentation are met. During the entire life of the transaction, the SPRF will be one of the main sources of liquidity to offset temporary short-term insufficiencies in interest proceeds available to cover the Issuer’s interest payments for the notes and to pay for the services rendered by the Issuer’s counterparties. In certain situations, the SPRF may also be a source of credit enhancement for the notes, i.e. in some scenarios, the SPRF forms part of the collateral available to compensate principal losses. In particular, in case of early repayment of the notes at the request of noteholders, the SPRF can be used to compensate for insufficient principal proceeds in order to repay the rated notes.
According to the transaction’s priority of payments, the cash flows will be allocated via a simple sequential payment waterfall. The principal proceeds from the mortgage loans will be used to repay the principal due on the notes. Repayment of class B notes only takes place after the full repayment of the class A notes. In ACRA’s opinion, such an arrangement will allow for the timely payment of interest and the ultimate payment of the principal on the class A rated notes until their legal final maturity.
Rating sensitivity
The model sensitivity analysis shows possible changes in the initial ACRA ratings assigned to notes, depending on changes in the underlying model assumptions. As alternative input parameters, ACRA used the stress values of the EL on the mortgage portfolio and GRASP AAA EL, reflecting significant deterioration in macroeconomic conditions as compared to the base case scenario.
At the time the definitive rating was assigned, the analysis indicated that, all else being equal, the credit rating of the class A notes — AAA(ru.sf) — could withstand an increase of the portfolio EL from 2.54% to 5.74%. Similarly, the AAA(ru.sf) rating of the class A notes would hold if GRASP AAA EL increased from 19.75% to 22.7%, with all else being equal. The sensitivity analysis also showed that the maximum decline in the rating did not exceed three notches in the most stressful scenarios modelled.
Potential outlook or rating change factors
A negative rating action may be prompted by developments that include the following:
- Deterioration of the macroeconomic conditions beyond the stress scenarios used in the rating analysis;
- Increase in payment delinquencies and losses in the portfolio at levels exceeding those modelled as part of the analysis;
- Unforeseen legislative changes negatively affecting the transaction;
- Inability to replace the Issuer’s Account Bank upon its downgrade.
Impact of COVID-19 on the rating
The COVID-19 pandemic and subsequent drop in oil prices have exacerbated the state of the Russian economy and negatively affected both the financial stability of banks and the real incomes of the population. This in turn has led to a worsening in the debt service indicators of banks’ loan portfolios, growth in overdue debt, and a higher share of restructured loans.
ACRA took the impact of the macroeconomic decline and the government’s economic measures to support the population (including the portfolio exposure to the mortgage holidays) into account when assessing the EL for the rated class A notes. As part of the scenario approach, ACRA applied additional adjustments to the size of cash flows received from loans in the collateral portfolio, the CPR, recovery lag and recovery rates, and a number of other modelled parameters.
Nevertheless, the high degree of uncertainty surrounding the spread of COVID-19, insufficient statistics on how the macroeconomic downturn is impacting the quality of mortgage portfolio debt servicing in the long term, and also the specific nature of the current crisis put pressure on the forecasts and assumptions that ACRA has used when modelling the transaction. ACRA will continue to monitor changes to macroeconomic indicators, including the situation related to the COVID-19 pandemic, and their potential impact on the credit rating.
Regulatory disclosure
The definitive credit rating has been assigned under the national scale of structured finance sector for the Russian Federation based on the Methodology for Assigning Credit Ratings to Structured Finance Instruments and Obligations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
A definitive credit rating has been assigned to the class A exchange-traded mortgage-backed securities that LLC “MA TB-1” plans to issue for the first time. The credit rating is expected to be revised within one year following the publication date of this press release.
The definitive credit rating was assigned based on the data provided by Tinkoff Bank, information from publicly available sources, as well as ACRA’s own databases. The definitive credit rating is solicited, and Tinkoff Bank participated in the rating process.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to Tinkoff Bank and LLC “MA TB-1.” No conflicts of interest were identified in the course of the credit rating process.
