The expected credit rating of the senior tranche planned for issuance under this dynamic transaction has reached eAAA(ru.sf) due to the credit enhancement provided to the senior tranche by the subordinated tranche of class B notes, the reserve fund, a level of excess yield, as well as due to the quality of the collateral portfolio.
RATINGS
An expected credit rating of eAAA(ru.sf) has been assigned to the planned issue of bonds secured by collateralized cash claims, the maturity date is [December 31, 2031], the issue volume is no more than RUB [8,000] mln.
The junior notes, which are class B notes, have not been assigned an expected credit rating.
TRANSACTION STRUCTURE
Class A bonds with collateral are planned to be issued by "SFO Sovcom Secure" LLC (hereinafter, the Issuer) as part of a securitization transaction of a portfolio of consumer loans issued by PJSC Sovcombank (ACRA rating AА(RU), outlook Stable; hereinafter, Sovcombank, the Bank, or the Originator). The portfolio of consumer loans acts as collateral. The main source of financing for the fulfillment of obligations for the bonds is the funds received by the Issuer from borrowers to pay off obligations for the loans.
This transaction is the first issue of bonds with collateral secured by a portfolio of consumer loans issued by Sovcombank to individual borrowers, which has been assigned an expected credit rating by ACRA. The transaction is dynamic: the structure of the transaction provides for the inclusion of new loans in the collateral in exchange for those repaid within one year from the date of the bond issue, as well as after the end of the reinvestment period, if there are funds available in the percentage waterfall.
The transaction has not been organized within the framework of Simple, Transparent and Comparable Securitization Standards and does not provide for compensation of losses using the state budget and/or external guarantees of third parties.
ISSUER
The Issuer is a bankruptcy-remote special-purpose 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 Sovcombank’s consumer loan agreements, as well as the issue of collateralized bonds.
TRANSACTION STRUCTURE analysis
The most significant factors that determined the structure of the transaction are:
-
level of excess yield due to a difference between the weighted average interest rate on the asset portfolio and the coupon amount on the rated bonds;
-
Eligibility requirements for the loan portfolio: the portfolio must not contain collateral for borrowers with a negative credit history and overdue payments of more than 30 days;
-
Transaction triggers: accelerated and parallel depreciation;
-
Triggers for replacing the account bank, service and settlement agents;
-
Historical data from January 2021 on the quality of debt servicing and on the levels of reimbursement for the credit product included in the securitized portfolio.
ISSUE STRUCTURE
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 [20]% 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 to [12]% of the issue volume of tranche A. 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 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.
The structure of the transaction provides for a simple sequential order of distribution of funds. During the reinvestment period, funds received in the Issuer’s accounts as payment of obligations to repay the principal amount of debt on loans included in the collateral on the notes are used to acquire new assets that meet the eligibility criteria. At the end of the reinvestment period, class A notes are amortized from funds credited to the Issuer's accounts as payment for obligations to repay the principal amount of loans secured by the notes. The repayment of class B notes is not carried out until the full repayment of class A notes. Also, after the end of the reinvestment period, new loans can be purchased if there are funds available in the interest waterfall. In ACRA’s opinion, the structure of this transaction allows for timely coupon payments and repayment of the nominal value of the notes during their entire life before the legally fixed maturity date in the issue documentation.
RATING COMPONENTS
The assigned expected 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 includes two stages. At the first stage of the analysis of the Issuer’s securitized assets, ACRA, based on vintage tables, estimated the level of expected losses for the consumer loan portfolio with a mathematical expectation (as a result of extrapolation of vintages) at the level of [15.93]% and a standard deviation of [4.25]%. At the second stage, the results of the vintage analysis were used as one of the input parameters in the GRASP Payment Waterfall (GRASP-PW) model to model the structure of the Issuer’s liabilities, taking into account the influence of credit quality enhancement mechanisms, projected recovery rates, early repayment, reserve fund size, and other factors affecting the distribution of cash flows in the transaction.
POTENTIAL RATING CHANGE FACTORS
Events that may lead to a negative rating action include the following:
-
Deterioration of macroeconomic conditions that go beyond the stress scenarios employed in the rating analysis;
-
Growth of overdue debt and losses on the loan portfolio that exceed the parameters employed in the rating analysis;
-
Amendments to legislation that could have a significant negative impact on the transaction.
REGULATORY DISCLOSURE
The expected 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.
An expected credit rating has been assigned to the class A cash-secured notes planned to be issued by "SFO Sovcom Secure" LLC for the first time. ACRA expects to assign a definitive credit rating within one year from the date of publication of this press release.
The expected credit rating was assigned based on data provided by PJSC Sovcombank, information from publicly available sources, and ACRA’s own databases. The expected credit rating is solicited and PJSC Sovcombank 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 PJSC Sovcombank. ACRA provided no additional services to "SFO Sovcom Secure" LLC. No conflicts of interest were discovered in the course of the credit rating assignment.
