Scope Ratings upgrades the ratings on the notes issued by IM GBP EMPRESAS VI, a Spanish SME ABS securitisation of unsecured loans originated by Grupo Banco Popular. The securitised assets have demonstrated robust performance.

The rating actions on the notes issued by IM GBP EMPRESAS VI are as follows:

Class A (ISIN: ES0305064000), EUR 706.7m: upgrade to AAA_SF, from AA_SF
Class B (ISIN: ES0305064018), EUR 660m: upgrade to BB_SF, from B+_SF

Rating rationale

The upgrades are driven by increased credit enhancement, in the context of good underlying collateral performance and rapid amortisation. Current portfolio defaults amount to 0.39% of the initial balance and the current annual prepayment rate is 22.4%, according to the issuer report dated 30 June 2016. The rating actions also factor the macroeconomic outlook on the Spanish economy. Scope assumes the Spanish recovery will continue in the short term, although long-term uncertainty remains with high unemployment and fiscal imbalances.

The upgrade on the class A notes reflects the increase in the tranche’s overcollateralisation as credit enhancement rose to 54.8% of the performing asset balance from 25% at closing. The tranche’s expected weighted average life reduced to 0.6 years from 1.4 years at closing. In addition, counterparty risks for the notes are mitigated by their short remaining life and by Scope’s A+ rating with a Stable Outlook on Banco Santander, the account bank. The exposure to Banco Popular as servicer does not compromise the AAA_SF rating on the class A because the bank is relevant to the Spanish economy and would enter resolution – rather than defaulting – under the framework for orderly bank restructuring. The management company can appoint a new servicer should the timely collection from the assets be at risk. Commingling risk from Banco Popular, the treasury account bank and paying agent, is mitigated by the credit quality of the bank as assessed by Scope as well as the short holding period of funds.

The upgrade on the class B primarily reflects the credit enhancement’s increase to 6.6% of the performing asset balance from 3% at closing. Class B remains substantially exposed to Banco Santander (A+/Stable), which holds the cash-based credit enhancement in the reserve fund over the tranche’s life. This cash balance will not be used to provision losses on an ongoing basis.

Portfolio performance

Fast amortisation. The structure has de-levered significantly after 16 months, which is reflected in the senior tranche repayment (30.2% of the initial portfolio is outstanding). Scope’s view is that the pool remains granular, with more than 32,955 exposures outstanding. Scope expects fast amortisation to continue in the short run and to then slow down.

Low delinquencies. Delinquency levels are below Scope’s base case expectations thanks in part to the recovery in Spanish economy. Total delinquencies are 3.35% of current balance, of which 48% relate to ‘30 days’ delinquencies that are mostly technical and have a high likelihood of being subsequently cured; ‘above 90 days’ delinquencies are rising but at a low 1.2% of the current portfolio. Defaults are 0.39% of the initial portfolio balance.

Scope has received monthly reporting, together with an update on the portfolio’s performance, covering the first 16 months since the closing of the transaction.

Modelling assumptions

No loan-by-loan data was provided. This constrains the analysis and has been factored into the ratings.

Scope used the same key modelling assumptions as at the date of closing. Scope modelled a mean lifetime ‘90 days past due’ default rate of 6.24%, a coefficient of variation of 70% and a base case recovery rate of 27%.

Notes

IM GBP EMPRESAS VI is a EUR 3,000m true-sale securitisation of a portfolio of unsecured loans granted to small and medium-sized enterprises and self-employed individuals to finance diverse business-related needs, all of which occurs under Spanish law. The assets were originated by Banco Popular and Banco Pastor, a banking franchise now fully integrated into Grupo Banco Popular. The transaction closed on 30 March 2015 and the legal final maturity of the notes is 22 January 2046.

Regulatory and legal disclosures

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr Stefan Bund and Dr Sven Janssen.
The rating analysis has been prepared by Martin Hartmann, Lead Analyst
Responsible for approving the rating: Guillaume Jolivet, Committee Chair

Rating history
Instrument; ISIN; Date; Rating action; Rating
ES0305064000; 21.08.2015; Definitive; AA_SF
ES0305064018; 21.08.2015; Definitive; B+_SF

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate from the issuer of the investment, represented by the management company.
As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, hold any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Monthly investor reports produced by IM Grupo Banco Popular Empresas VI, Fondo de Titulización de Activos, covering the first sixteen months since the closing of the transaction up to the report dated June 2016; and proprietary information from Scope Ratings AG.
Scope Ratings considers the quality of the available information on the evaluated entity to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.
Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, use of confidential information, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodology applicable for this rating is ‘General Structured Finance Rating Methodology’. Scope also applied the ‘Methodology for Counterparty Risk in Structured Finance’. Both files are available on www.scoperatings.com. Additionally, the new issue report IM GBP EMPRESAS VI – Rating Report explains the framework and assumptions for the recovery analysis Scope has performed.
The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
© 2016 Scope Corporation AG and all its subsidiaries including Scope Ratings AG, Scope Analysis, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

Rating issued by
Scope Ratings AG, Lennéstrasse 5, 10785 Berlin.