The credit rating of the Residential Mortgage-Backed Notes (RU000A101ZU7) (the Notes) issued by LLC “MA Absolut 5” in the static securitization of mortgage loans granted by Absolut Bank (PAO) (hereinafter, Absolut Bank or the Bank; not rated by ACRA) has been affirmed at AAA(ru.sf) due to the collateral portfolio quality, strong credit support, and credit enhancement mechanisms.
ratings
The credit rating of the Notes due December 12, 2052 (current balance is RUB 607 mln) has been affirmed at AAA(ru.sf).
The Junior Subordinated Loan is not rated by ACRA.
Transaction
The Issuer issued ruble-denominated fixed rate Notes. Issue proceeds were used to purchase a portfolio of mortgage loans originated by Absolut Bank. 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 Notes are repayments received by the Issuer from the borrowers of underlying mortgage loans.
The rated Notes is the fifth issue of notes backed by a portfolio of mortgage loans issued by Absolut Bank, to which a credit rating is assigned. The securitized portfolio consists of Russian residential mortgage loans serviced by the Bank. TBank (АА(RU), outlook Stable) acts as the backup servicer, ready to assume all the functions of portfolio servicing in case Absolut Bank defaults on its contractual obligations, goes bankrupt or loses its banking license. The transaction is static: no new loans will be included in 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 No. 152 “On Mortgage Backed Securities”. The Issuer’s only two purposes are the acquisition of receivables arising from the mortgage loans backed by residential real estate and the issuance of mortgage-backed notes.
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 2.55% and the GRASP AAA EL is equal to 24.70%.
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 rating relevant factors include:
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Weighted average loan-to-value ratio of 50.68%;
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Strong performance demonstrated by the securitized portfolio: since the rating assignment date, the cumulative default rate reached 4.08% of the portfolio principal as of the transaction closing date;
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Positive credit history for most borrowers: 99.65% of loans have never been in arrears for more than 30 days, and 100% of loans have never been in arrears for more than 90 days.
issue
The rated Notes benefit from subordination, i.e. the priority of note payments is determined by their seniority against other obligations of the Issuer. As of the rating affirmation date, the credit enhancement level is 53.5%; the credit enhancement level has increased from 19.2% to 53.5% due to the partial early amortization of the Notes. The Notes include credit enhancement in the form of the Special Purpose Reserve Fund (SPRF), which was created on the issue date and amounts to 3.85% of the issue volume of tranches A and B. The SPRF may be drawn down in proportion to the par value of the Notes, subject to the floor amount equal to 1% of the initial issue volume of the class A and B 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 Notes.
According to the transaction’s priority of payments, the cash flows are allocated via a simple sequential payment waterfall. The principal proceeds from the mortgage loans are used to repay the principal due on the Notes. In ACRA’s opinion, such an arrangement allows for the timely payment of interest and the ultimate payment of the principal on the 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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Significant 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.
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 Absolut 5” was published by ACRA for the first time on August 7, 2020. 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 Absolut Bank (PAO), information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and Absolut Bank (PAO) participated 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 Absolut Bank (PAO). ACRA provided no additional services to LLC “MA Absolut 5”. No conflicts of interest were discovered in the course of credit rating assignment.
