The definite credit rating of the senior tranche issued under this static transaction has reached AAA(ru.sf) due to the credit enhancement provided to the senior tranche by the junior tranche of notes, the reserve fund, the risk assumption agreement, as well as due to the satisfactory quality of the collateral portfolio.
RATINGS
The definite credit rating of AAA(ru.sf) has been assigned to the issue of notes secured by monetary claims, the maturity date is September 6, 2029, the issue volume is RUB 207 mln.
The junior tranche, in the form of class B notes, was not assigned the definite credit rating.
TRANSACTION
Class A exchange-traded notes with collateral were issued by LLC “SFO RLO” (hereinafter, the Issuer) within the framework of a securitization transaction with monetary claims as collateral. The collateral is a portfolio of contracts for elevator capital repairs in apartment buildings concluded with “Mosregionlift” LLC (hereinafter, Mosregionlift, the Company, or the Originator).
The Issuer then used to issue notes denominated in rubles with collateral security by monetary claims. The funds raised by the Issuer as a result of the placement of notes will be used for long-term financing of the Originator’s activities. The rights of claim to the securitized portfolio acquired by the Issuer, as well as the rights under the pledge account agreement, will be included in the collateral. The main source of financing for the fulfillment of obligations under the notes are the funds received by the Issuer from clients under service agreements, in payment of obligations under the elevator capital repair contracts.
This transaction is the first issue of notes with monetary claims as collateral for a portfolio of contracts concluded with Mosregionlift and serviced by it. Rise Invest LLC will act as the reserve servicing agent, ready to assume all functions for supporting the portfolio in the event of bankruptcy of Mosregionlift or poor-quality and untimely provision of services by the Company. SME Bank JSC (BBB+(RU), outlook Stable) will act as the account bank. The transaction is static: the inclusion of new contracts in the collateral during the entire life until the maturity of the notes is not envisaged.
ISSUER
The Issuer is a specialized bankruptcy-remote financial company regulated by Federal Law No. 39-FZ “On the Securities Market” dated April 22, 1996. The exclusive subject of the Issuer’s activities is the acquisition of rights of claim under elevator equipment replacement agreements concluded with individuals and legal entities, as well as the issue of notes with collateral.
RATING COMPONENTS
The assigned definite credit rating reflects ACRA’s opinion regarding the amount of expected losses on the Issuer’s rated notes before their legally fixed maturity date. As per the Methodology for Assigning Credit Ratings to Structured Finance Instruments and Obligations under the National Scale for the Russian Federation, ACRA’s analysis included two stages. At the first stage, as a result of the analysis of the Issuer’s securitized assets, ACRA calculated the distribution of the probability of default for the portfolio of elevator capital repairs contracts that secures the rated notes, with a mathematical expectation of 6.32% and a standard deviation of 7.59%. At the second stage, the results of the portfolio analysis were used as input parameters in modeling the structure of the Issuer’s liabilities and determining the expected losses on the rated notes, taking into account the influence of credit quality enhancement mechanisms, projected levels of loss recovery, early repayment and other factors affecting the distribution of cash flows in the transaction.
transaction strengths and weaknesses
Strengths:
-
The Originator’s obligations under all contracts in the portfolio have been fulfilled — all elevators have been replaced;
-
Payment for services is made from the capital repairs fund accumulated on a special account from utility bill payments;
-
The presence of a significant reserve (more than 20%) of cash flow calculated as the difference between the average total volume of monthly utility bill payments and the volume of monthly obligations under each contract;
-
A simple two-tranche transaction, the use of endogenous mechanisms to protect the credit quality of the senior tranche, including subordination, the presence of a hybrid reserve.
Weaknesses:
-
Limited experience of Mosregionlift as a servicing agent and Rise Invest LLC as a backup servicing agent in securitization transactions;
-
Lack of computer-aided report and data uploading; data is collected manually;
-
Limited case law on various aspects of securitization transactions in the Russian market; the growing volume of litigation practice is complemented by strong legislation in the field of securitization and consistent support for securitization by the legislative and executive authorities.
note collateral portfolio analysis
The most significant factors in the contract portfolio are:
-
Absence of defaults and arrears in the portfolio due to the absence of fines and penalties;
-
Charges for capital repairs are mandatory under the Housing Code of the Russian Federation;
-
Monthly payments under securitized agreements do not exceed 80% of monthly payments to the special account within the current capital repairs tariff;
-
Annual indexation of the capital repairs tariff reduces the share of the payments to the special account;
-
It is impossible to change the accumulation of funds for capital repairs until the full payment under the agreement in accordance with the Housing Code of the Russian Federation (Article 189);
-
The special account is protected from the default by the Housing Code of the Russian Federation (Articles 174, 175);
-
As there is no audit opinion on the portfolio of contracts, ACRA randomly selected 20 contracts to check the correctness of the data presented in the Agency’s template;
-
There is no excess yield since the product does not involve the accrual of any interest under the contracts.
ISSUE STRUCTURE ANALYSIS
The note issue structure includes a subordination mechanism, whereby the priority of obligations under the class A notes is determined by their seniority compared to the Issuer’s obligations under the class B notes subordinated to the class A notes. The total volume of credit enhancement for the class A notes formed through tranche B is 31% of the asset portfolio. Additional credit enhancement for the notes is provided by a special purpose reserve fund (SPRF) established on the issue date and amounting to 8.42% of the tranche A issue volume. The SPRF fund may be amortized in proportion to the amortization of the notes; the required volume of the SPRF will be reduced on each coupon payment date (CPD) by the amount of coupon yield for two coupon periods for the class A notes of the outstanding principal on the class A notes on any CPD subject to the conditions specified in the issue documentation. The funds of the SPRF can be used to pay interest (coupon) on the notes. If the SPRF’s funds are used in any of the coupon periods, the SPRF is subject to replenishment in the next coupon period up to the required amount.
The structure of the transaction provides for a simple sequential waterfall of payments. Notes are amortized with funds received in the Issuer’s accounts as principal repayments under the portfolio of contracts securing the notes. Class B notes will not be repaid until class A notes are repaid in full. In ACRA’ opinion, the structure of this transaction ensures timely coupon payments and repayment of the nominal value of class A notes throughout their entire life until the maturity date set out in the issue documentation.
POTENTIAL RATING CHANGE FACTORS
A negative rating action may be prompted by:
-
Deterioration of macroeconomic conditions that go beyond the stress scenarios used in the rating analysis;
-
Growth of overdue debt and increase in losses on the portfolio that exceed the parameters used in the rating analysis;
-
Amendments to legislation that could have a significant negative impact on the transaction.
REGULATORY DISCLOSURE
The definite 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.
A definitive credit rating has been assigned to the class A exchange-traded asset-backed securities of LLC “SFO RLO” for the first time. ACRA expects to review the credit rating within one year following the publication date of this press release.
The definite credit rating was assigned based on data provided by “Mosregionlift” LLC, information from publicly available sources, and ACRA’s own databases. The definite credit rating is solicited and “Mosregionlift” LLC participated its assignment.
In assigning the definite 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 no additional services to “Mosregionlift” LLC and LLC “SFO RLO”. No conflicts of interest were discovered in the course of definite credit rating assignment.
