The credit rating of the senior tranche issued in this static RMBS transaction has been affirmed at 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.
Rating
The credit rating of the issue of Residential Mortgage-Backed Fixed Rate Notes due on June 26, 2050 (current balance: RUB 1.814 mln) has been affirmed at AAA(ru.sf).
No ratings have been assigned to the Junior Notes, which are class B and C exchange-traded residential mortgage-backed notes.
Transaction
The ruble-denominated fixed-rate exchange-traded mortgage-backed notes were issued by LLC “MA Titan 5” (hereinafter, the Issuer). The Issuer then used the proceeds from the issuance to purchase a portfolio of mortgage loans and to repay a loan provided by Sberbank (AAA(RU), outlook Stable) to the Issuer in order to acquire a portfolio of mortgage loans. The receivables on the mortgage loans acquired by the Issuer 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 transaction is the eleventh classic MBS issue backed by a portfolio of mortgage loans issued by Joint Stock Company “Housing Finance Bank” (hereinafter, HFB; no ACRA rating has been assigned) and the second transaction with the participation of the rating agency. The securitized portfolio consists of Russian residential mortgage loans serviced by HFB. PJSC SCB “Metallinvestbank” (A-(RU), outlook Positive) acts as the backup servicer, ready to assume all the functions of portfolio servicing if HFB goes bankrupt, or its banking license is withdrawn, or it does not fulfill its contractual obligations. The transaction is static: no new loans will be introduced into the securitized portfolio until the notes’ maturity.
The transaction is neither part of the RMBS Factory program (JSC “DOM.RF”, AAA(RU), outlook Stable), nor organized according to STS securitization standards; it does not involve any 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” dated November 11, 2003. The Issuer’s only two purposes are the acquisition of receivables arising from mortgage loans backed by residential real estate and/or mortgage certificates, and the issuance of mortgage backed securities.
Rating components
The 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 3.44% and the GRASP AAA EL is equal to 22.65%. 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 influenced the credit rating are:
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Weighted average loan-to-value ratio: 45.63%;
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Strong performance demonstrated by the securitized portfolio: since the rating assignment date, the cumulative default rate reached 0.69% 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 class B and C notes, which are subordinated to class A notes. The aggregate volume of credit enhancement for the rated class A notes, formed by tranches B and C, is 19% of the asset portfolio. As of the rating affirmation date, the subordination level is 30.9%; the subordination level has increased from 19% to 30.9% 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 before the issue date and amounts to 5.75% 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. 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 fully 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 by the Issuer to repay the principal due on the notes. Repayment of class B notes is possible starting from the fifth coupon period if the conditions for proportional amortization are met or if there are no grounds for termination of proportional amortization. Repayment of class C notes is not made until the full repayment of class A and class B 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 conditions beyond the stress scenarios used in the rating analysis;
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Increase in payment delinquencies and 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 account bank upon its downgrade.
Regulatory disclosure
The credit rating has been assigned under the national scale 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 to the class A exchange-traded mortgage-backed securities issued by LLC “MA Titan 5 was published by ACRA for the first time on February 21, 2023. 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”, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Joint Stock Company “Housing Finance Bank” participated in the rating process.
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 Joint Stock Company “Housing Finance Bank”. ACRA provided no additional services to LLC “MA Titan 5”. No conflicts of interest were discovered in the course of credit rating assignment.
