The senior tranche issued in this static RMBS transaction achieved AAA(ru.sf) by ACRA due to a low weighted average loan-to-value ratio (LTV) and the considerable weighted average life of loans in the securitized portfolio.
Ratings
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Definitive rating AAA(ru.sf) assigned to RUB 7,547m Residential Mortgage-Backed Fixed Rate Notes due December 10, 2045.
The subordinated Loan was not rated by ACRA.
Transaction
As a part of the previous rating action (August 28, 2018), ACRA assigned the expected credit rating eAAA(ru.sf) to the above notes. In compliance with standard procedure, ACRA assigned the definitive credit rating to the notes after receipt of the final issue documentation and other transaction documents.
LLC «MA BSPB 2» (hereinafter, the Issuer) issued the notes secured by the portfolio of residential mortgage loans issued by «Bank «Saint-Petersburg» PJSC (A-(RU), outlook Stable) (hereinafter, BSPB or the Bank).
The Issuer issued ruble denominated fixed rate notes. Proceeds from the issue will be used to purchase the portfolio of mortgage loans originated by BSPB. 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 Bank’s first structured finance transaction that received a definitive credit rating, the second securitization transaction concerning mortgage loans granted by BSPB and, the Bank’s first independent mortgage securitization transaction that does not involve support provided by JSC "DOM.RF" (ААА(RU), outlook Stable) (hereinafter, DOM.RF). 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 the backup servicer, ready to service the portfolio in case of untimely or poor services by BSPB, its bankruptcy, or withdrawal of its banking license. The transaction is static: no new loans will be introduced into the securitized portfolio until notes reach maturity.
The transaction is not part of the RMBS Factory program of DOM.RF; it is not based on principles of self-certification or minimization of independent analysis as part of 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 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 loans backed by residential real estate and the issuance of mortgage backed securities.
Rating components
The definitive 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 1.90% and the GRASP AAA Expected Loss (EL) is equal to 16.05%. 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.
Mortgage portfolio
The most significant factors that determined the portfolio expected losses are:
- low weighted average loan-to-value ratio (42.54%);
- considerable weighted average life of loans comprising the securitized portfolio: 3.37 years;
- loan data error identified by the external verification of the securitized portfolio as part of the agreed upon procedures;
- high concentration of the loans in two key regions: 100% of the loans are granted in Saint Petersburg and the Leningrad Region;
- positive credit history for most borrowers: no loans in the securitized portfolio have been in arrears for more than 30 days since their origination, 65% of the loans have never been in arrears;
- absence of income verification via 2-TIPI and 3-TIPI1 forms 69.32% of the borrowers;
- difference between the value of the mortgaged properties securing the loans in the securitized portfolio and the average price for residential real estate in the relevant regions (27% of the securitized portfolio).
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. The subordination to the rated notes is provided by the subordinated loan granted by Bank to the Issuer to cover 8% of securitized portfolio purchase price. Additional credit support to the notes is provided by the Special Purpose Reserve Fund (SPRF) (5.3% of the rated issuance) formed before the note issue date. 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 issue volume 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 mitigating short-term delinquencies in interest proceeds available to cover Issuer’s senior expenses, payments under the PDL mechanism, as well as senior note interest payments. 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. In ACRA's opinion, such an arrangement will allow for the timely payment of interest and the ultimate payment of principal on the notes until their legal final maturity.
Rating sensitivity
Model sensitivity analysis shows possible changes in the initial ACRA ratings assigned to the 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 significant deterioration in macroeconomic conditions as compared to the base case scenario.
At the time the definitive rating was assigned, the analysis indicated that, all else being equal, the definitive rating AAA(ru.sf) could withstand the increase of portfolio EL to 4.75% from 1.90%. Similarly, the rating AAA(ru.sf) would remain unchanged if GRASP AAA EL increases to 19.26% from 16.05%. The sensitivity analysis also showed that the maximum decline in the rating did not exceed three notches in the most stressful scenarios modelled.
Potential outlook or rating change factors
A negative rating action may be prompted by the developments that include the following:
- Deterioration of the macroeconomic conditions beyond the stress scenarios used in the rating analysis;
- Increase in the short term payment delinquencies and losses in the portfolio, at the levels exceeding those modelled as part of the analysis;
- Unforeseen legislative changes negatively affecting the transaction;
- Inability to replace the Issuer’s Account Bank upon its downgrade.
Regulatory disclosure
The principal methodology used to assign the definitive 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 definitive credit rating was assigned to the mortgage-backed notes issued by LLC «MA BSPB 2» for the first time. ACRA expects to review the credit rating within one year following the rating assignment date (December 3, 2018).
The credit rating was assigned based on the data provided by «Bank «Saint-Petersburg» PJSC, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and «Bank «Saint-Petersburg» PJSC participated in the rating process.
No material discrepancies between the provided information and the data officially disclosed by «Bank «Saint-Petersburg» PJSC in its financial statements have been discovered.
ACRA provided additional services to «Bank «Saint-Petersburg» PJSC. ACRA provided no additional services to LLC «MA BSPB 2». No conflicts of interest were identified in the course of the credit rating process.
The press release on the expected credit rating was published on August 28, 2018.
