The expected credit rating of the senior tranche to be issued in this dynamic multi-originator RMBS transaction is eAAA(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 expected eААА(ru.sf) credit rating has been assigned to the planned issue of Mortgage-Backed Residential Fixed Rate Notes. The final maturity of the notes is [May 27, 2044], and the issue volume is no more than RUB [8.5] bln.
The Junior Tranche, which is exchange-traded mortgage-backed residential B class notes, has not been assigned an expected rating.
Transaction
The class A exchange-traded mortgage-backed notes are planned to be issued by LLC “MA TB-2” (hereinafter, the Issuer) as part of the securitization of the portfolio of mortgage loans issued by TBank (AA(RU), outlook Stable) (hereinafter, TBank or the Bank).
The Issuer plans to issue 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 TBank. 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 coming from the underlying mortgage loans.
This transaction is the second issue of classic MBS backed by a portfolio of mortgage loans issued by TBank, which is assigned an expected credit rating. The securitized portfolio consists of Russian residential mortgage loans serviced by the Bank. There is no backup servicer, ready to assume all the functions of portfolio servicing in case the originator bank goes bankrupt, or its banking license is withdrawn, or it does not fulfill its contractual obligations. In this case, if the Bank is unable to perform its functions for any reason or if the trigger for the Bank’s credit rating level is violated, the service agent will be replaced. The transaction is dynamic: its structure provides for the inclusion of new loans in the collateral in exchange for bonds repaid within one year from the date of issue.
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 includes 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 mortgage loans backed by residential real estate and/or mortgage certificates, and the issuance of mortgage backed securities.
Rating components
The expected 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 [2.87]% and the GRASP AAA EL is equal to [18.20]%. 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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The size of the excess spread stemming from the difference between the weighted average interest rate on the asset portfolio and the size of the coupon for the rated notes;
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Extremely low weighted average loan-to-value ratio [33.87]%;
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Low weighted average seasoning of the loans comprising the securitized portfolio: [8] months;
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Hybrid nature of assets in the securitized portfolio, which combines consumer and mortgage lending components;
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Absence of official income verification via 2-TIPI and/or 3-TIPI forms for 100% of the borrowers in the securitized portfolio; the Bank does not use classical forms to assess the borrower’s income and uses its own methodology;
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Presence of borrowers with negative credit histories in the securitized portfolio; the Bank uses its own model to assess the probability of default on the loan.
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 [15]% 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 [12]% of the issue volume of tranche A. The SPRF has a hybrid structure: on the date of the start of the note placement, a basic reserve is formed in the amount of [3]% of class A notes, in case of non-compliance with the conditions for the required amount of the SPRF, it is upgraded to [6]% of the current volume of class A notes; in addition, a credit facility agreement is provided, and if necessary, additional formation of the reserve fund the credit line is initiated to the level of [12]% of the current volume of Class A notes. If necessary, funds from the credit line are credited to the account day by day. The SPRF may be drawn down after the end of the reserve period in proportion to the par value of the rated notes, subject to the floor amount equal to [1]% (not less than the amount of the coupon payment on class A bonds) 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.
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 stipulated by the issue documentation.
Potential rating change factors
A negative rating action may be prompted by developments that include the following:
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Deterioration of 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 a downgrade of its long-term creditworthiness rating.
Regulatory disclosure
The expected 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.
An expected credit rating has been assigned to the class A mortgage-backed securities that LLC “MA TB-2” plans to issue for the first time. ACRA expects to assign a definitive credit rating within one year following the publication date of this press release.
The expected credit rating was assigned based on data provided by TBank, information from publicly available sources, and ACRA’s own databases. The expected credit rating is solicited and TBank participated in its assignment.
In assigning the expected 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 TBank. ACRA provided no additional services to LLC “MA TB-2.” No conflicts of interest were discovered in the course of expected credit rating assignment.
