The credit rating of the senior tranche issued in this static RMBS transaction has been affirmed at AAA(ru.sf) due to collateral portfolio quality and credit enhancement mechanisms.
ratings
The credit rating assigned to the issue of Residential Mortgage-Backed Fixed Rate Notes due on July 28, 2053 (current balance: RUB 413 mln) has been affirmed at AAA(ru.sf).
The Junior Notes, which are exchange-traded mortgage-backed residential B1 and B2 class notes, have not been assigned ratings.
As part of the previous rating action (on February 28, 2023), ACRA affirmed the credit rating of the senior tranche of mortgage-backed notes issued by LLC “MA Titan 3” at AAA(ru.sf). In compliance with its standard procedures, ACRA has reviewed the credit rating within one year after the previous rating action date.
Transaction
The class A exchange-traded mortgage-backed notes were issued by LLC “MA Titan 3” (hereinafter, the Issuer) as part of the securitization of the portfolio of mortgage loans issued by Joint Stock Company “Housing Finance Bank” (hereinafter, HFB; no ACRA rating has been assigned) and JSC Asian-Pacific Bank (no ACRA rating) (hereinafter APB), jointly referred to as the Banks.
The Issuer issued ruble-denominated fixed rate notes. The Issuer then used the proceeds from the issuance to purchase a portfolio of mortgage loans originated by APB and to repay a loan provided by Sberbank (AAA(RU), outlook Stable) to the Issuer in order to acquire a portfolio of mortgage loans originated by HFB. The receivables on the mortgage loans acquired by the Issuer (APB portfolio) and owned by it (HFB portfolio) are included in the mortgage collateral of the notes. The main source of payments on the rated notes stems from repayments coming from the underlying mortgage loans.
This multi-originator transaction is the tenth non-agency MBS issue backed by a portfolio of mortgage loans issued by HFB and the third securitization transaction of APB to which a definitive credit rating was assigned. It is the second joint MBS issue backed by a portfolio of mortgage loans issued by the Banks. The securitized portfolio consists of Russian residential mortgage loans serviced by the Banks. PJSC SCB “Metallinvestbank” (A-(RU), outlook Positive) acts as the backup servicer, ready to assume all the functions of portfolio servicing in case APB and/or HFB do not fulfill their contractual obligations, in a bankruptcy event or the withdrawal of their banking licenses. The transaction is static: no new loans will be introduced into 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 dated November 11, 2003 No. 152 “On Mortgage Backed Securities”. The Issuer’s only two purposes are the acquisition of receivables arising from the mortgage loan backed by residential real estate and the issuance of mortgage backed securities.
rating components
The definitive credit rating reflects ACRA’s opinion on the expected losses (EL) 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 EL of the mortgage loan portfolio is equal to 3.86% and the GRASP AAA EL is equal to 30.40%.
Secondly, the portfolio metrics were used as input parameters in modeling the structure of the Issuer’s obligations and determining the EL 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 influenced the credit rating are:
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Weighted average loan-to-value ratio: 48.81%;
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Strong performance demonstrated by the securitized portfolio: since the rating assignment date, the cumulative default rate reached 5.97% of the portfolio principal as of the transaction closing date;
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Positive credit history for most borrowers.
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 B1 and B2 class notes, which are subordinated to the class A notes. As of the rating affirmation date, the subordination level is 55.5%; the subordination level has increased from 21.5% to 55.5% due to the partial early amortization of the rated notes. 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 tranche A issue volume. 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 notes and provided that the draw down 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 is allocated via a simple sequential payment waterfall. The principal proceeds from the mortgage loans are used to repay the principal due on the notes. Repayment of class B1 and B2 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.
Potential outlook or rating change factors
A negative rating action may be prompted by developments that include the following:
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Deterioration of the macroeconomic environment beyond the stress scenarios used in the rating analysis;
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Increase in short-term payment delinquencies and/or losses in the portfolio, at levels exceeding those modelled as part of the analysis;
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Unforeseen legislative changes negatively affecting the transaction;
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Inability to replace the Issuer’s Account Bank upon its downgrade.
regulatory disclosure
The credit rating has been assigned under the national scale of the 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.
The credit rating of the mortgage-backed notes issued by LLC “MA Titan 3” was published by ACRA for the first time on March 4, 2021. The credit rating is expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by Joint Stock Company “Housing Finance Bank”, JSC Asian-Pacific Bank, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Joint Stock Company “Housing Finance Bank” and JSC Asian-Pacific Bank participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to JSC Asian-Pacific Bank and Joint Stock Company “Housing Finance Bank”. ACRA provided no additional services to LLC “MA Titan 3”. No conflicts of interest were discovered in the course of credit rating assignment.
