For the first time nationally accredited Russian rating agency assigns credit rating to a structured finance transaction.
Subordinated Loan was not rated by ACRA.
«MA Metallinvest-2» LLC (“Issuer”) will issue the notes secured by the portfolio of residential mortgage loans issued by PJSC SCB "Metallinvestbank" (ВВВ+(RU), outlook Stable) (hereinafter, Metallinvestbank or the Bank).
The Issuer will issue ruble denominated fixed rate notes. Proceeds from the issue will be used to purchase the portfolio of mortgage loans originated by Metallinvestbank. Mortgage receivables acquired by the Issuer will form part of the mortgage security for the notes. The main source of payments on the rated note will comprise of repayments from the underlying mortgage borrowers.
The transaction is the second securitization transaction concerning mortgage loans granted by Metallinvestbank, also Bank’s first independent mortgage securitization transaction that does not involve support provided by AHML, and Bank’s first structured finance transaction that received credit rating. The securitized mortgage portfolio comprises ruble denominated Russian residential mortgage loans serviced by the Bank. DeltaCredit Bank JSC (AAA(RU), outlook Stable) will act as a backup servicer, ready to service the portfolio in case of untimely or poor services by Metallinvestbank, its bankruptcy or withdrawal of its banking license. The transaction is static: no new loans will be introduced into the securitized portfolio until notes’ maturity.
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 the Russian Federal Law N-152 “On Mortgage Backed Securities”. The Issuer’s only two purposes are the acquisition of receivables arising from the mortgage loan backed by residential real estate and the issuance of mortgage backed securities.
The expected credit rating reflects ACRA's opinion on the expected losses posed to investors by the notes’ legal final maturity. In accordance with the “Methodology for Assigning Credit Ratings to Structured Finance Instruments and Obligations on the National Scale for the Russian Federation”, ACRA conducted its analysis in two stages. At the first stage, ACRA estimated that the expected loss of the mortgage loan portfolio is equal to 2.10% and the GRASP AAA Expected Loss (EL) is equal to 14.65%. At the second stage, 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.
The most significant factors that determined the portfolio expected losses are:
The rated notes benefit from subordination, i.e. the priority of note payments is determined by their seniority against other obligations of the Issuer. The subordination to the rated notes is provided by the subordinated loan granted by Metallinvestbank to the Issuer to cover 9% of securitized portfolio purchase price. An additional credit support to the notes will be provided by the Special Purpose Reserve Fund (SPRF) (4.5% of the issue volume) formed before the note issue date. The SPRF may be drown down in proportion to the par value of the rated notes, subject to the floor amount equal to RUB 40 mln and provided that the draw down criteria are met. During the entire life of the transaction, the SPRF will be one of the main sources of liquidity to cover potential short-term delinquencies in senior note interest payments and Issuer’s senior expenses. In certain situations, the SPRF may also be a source of credit support for the notes, i.e. in some scenarios, the SPRF forms part of the security 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 insufficient principal proceeds in order to fully repay the rated notes.
According to the transaction’s priority of payments, the cash flows will be distributed via a simple sequential payment waterfall. The principal proceeds from the mortgage loans will be used to repay principal due on the notes. Other obligations of the Issuer will not be repaid until the rated notes are fully repaid. In ACRA's opinion, such arrangement will allow for timely payment of interest and ultimate payment of principal on the notes until their legal final maturity.
Model sensitivity analysis shows possible changes in the initial ACRA ratings assigned to notes, depending on changes in the underlying model assumptions . As alternative input parameters, ACRA used the stress values of the expected loss on the mortgage portfolio and GRASP EL, reflecting significantly deterioration in macroeconomic conditions as compared to the base case scenario.
At the time the expected rating was assigned, the analysis indicates that, all else being equal, the notes would have achieved AAA(RU) if the portfolio EL increased to 4.20% from 2.10%, and the GRASP AAA EL remained unchanged. Similarly, the rating will hold if GRASP AAA EL increased to 17.58% from 14.65% and the portfolio EL remained unchanged. The sensitivity analysis also showed that the maximum decline in the rating did not exceed two notches in the most stressful scenarios modelled.
A negative rating action may be prompted by the developments that include the following:
The principal methodology used to assign the expected credit rating was the “ACRA Methodology for Assigning Credit Ratings to Structured Finance Instruments and Obligations on the National Scale for the Russian Federation”.
The expected credit rating was assigned to the mortgage-backed notes issued by «MA Metallinvest-2» LLC for the first time. ACRA expects to assign the final credit rating within 90 days following the assignment date of the expected rating (March 01, 2018).
The expected credit rating was assigned based on the data provided by PJSC SCB "Metallinvestbank", information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and PJSC SCB "Metallinvestbank" participated in the rating process.
No material discrepancies between the provided information and the data officially disclosed by PJSC SCB "Metallinvestbank" in its financial statements have been discovered.
ACRA provided no additional services to PJSC SCB "Metallinvestbank" and «MA Metallinvest-2» LLC. No conflicts of interest were identified in the course of the credit rating process.
ACRA is of the opinion that any investment decision based on this report shall be taken with due consideration for possible changes in the transaction characteristics and the credit rating.
This report is based on the data available to ACRA as of February 2018. In view of standard transactional dynamics, in the period from the rating date to the issue date of the rated securities, certain components of the transaction may be subject to changes.
In case of material discrepancies between the final documents and other transactional information and the information obtained at the stage of expected rating, the credit rating assigned by ACRA at the issue date may differ from the expected credit rating.
ACRA is of the opinion that any expected credit rating assigned and published subject to all relevant explanations and using 'e' prefix is a critically important tool to increase the transparency of issues and a key early warning advisory notice for investors. Correct use of expected credit ratings extends the timeframes for taking investment decisions and decreases the probability of unweighted investment decisions under stress conditions.
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