Rating action

The transaction comprises the following instruments:

Class A (ISIN PTHEFZOM0001), EUR 39.8m outstanding amount: upgraded to BBB+_SF from BBB-_SF

Class B (ISIN PTHEF1OM0004), EUR 14m outstanding amount: affirmed at B-_SF

Class J (ISIN PTHEF2OM0003), EUR 25m outstanding amount: not rated

Scope’s review was based on available payment information and investor and servicer reporting as of May 2021.

Transaction overview

Hefesto STC S.A. - Guincho Finance is a static cash securitisation of a EUR 482m portfolio (as of closing) of Portuguese non-performing loans (NPLs) originated by Banco Santander Totta S.A. The transaction closed on 16 November 2018.

Through the 30 April 2021 collection period, aggregate gross collections were EUR 60m, which represents 110.6% of the original business plan expectations of EUR 54.3m. Total available gross collections are split between legal proceeds (57.8%), amicable resolution proceeds (22.7%), REO sales (15.4%) and other type of collections (4.1%).

Around 36.4% of gross collections (EUR 21.8m) stem from closed debtors (335 debtors) that represent 13.6% of total number of borrowers and whose GBV represents around 8.4% of the transaction’s initial GBV. Most closed debtors’ gross collections are legal proceeds (49.4%) and amicable resolution proceeds (42.5%) while remainders are split between other proceeds (5.2%) and other types of collections (2.8%). The legal proceeds are mainly stemming from loan sales by Hipoges. The total of loan sales’ recoveries is exceeding the business plan and Scope’s expectations.

Around 52.6% of the class A notes’ notional has amortised. Class A is strongly over hedged with the cap notional being at EUR 85m whereas class A is only EUR 39.8m outstanding.

The transaction’s cumulative net net collection ratio (i.e. considering expenses and servicing fees) and NPV profitability ratio stand at 132.7% and 169.4% respectively, as at the May 2021 payment date.

In May 2021, Whitestar Asset Solutions S.A took over the management of the unsecured positions from Proteus Asset Management, Unipessoal, Lda. (Altamira).

In the most recent business plans of the special servicers (April 2021) aggregated lifetime gross collections (including actual collections) have been revised downwards (1.3%) compared to the initial business plan. However, at the same time the lifetime net net collections have been revised upwards (3.4%), outweighing the decrease in gross collections. The adjustments made to the business plan do not impact Scope’s own recovery assumptions, even though we view the reforecast as consistent with the performance to date.

Rating rationale

The rating action is driven by the observed and expected performance of the transaction, as well as Scope’s updated modelling assumptions, which reflect the transaction’s performance and the current and developing macro-economic factors. Scope also compared the transaction’s performance to its own recovery assumptions, considering updated views on recovery estimates and macro-economic fundamentals, all developed through transaction-specific observations and benchmarking. Specifically, Scope expects base case lifetime collections (B rating category) to be around 6.7% lower compared to the amount forecasted at closing.

All counterparties continue to support the ratings, as there have not been material changes on counterparty risk since closing.

Key rating drivers

Strong performance (positive). Collections have come in much faster than Scope’s closing expectations and currently represent 55.2% and 45.8% of our expected lifetime collections considered in the initial analysis of the Class A and Class B notes, respectively. In addition, gross collections of closed borrowers have overperformed our assumptions as of closing.¹

Interest rate cap (positive). The transaction benefits from an interest rate cap which mitigates the interest rate risk between the asset recoveries and the floating rate on the notes. Class A is strongly over hedged with the cap notional being at EUR 85m whereas class A is only EUR 39.8m outstanding.¹

Unsecured loans’ performance (negative). Whitestar Asset Solutions S.A (Whitestar) took over the management of the unsecured positions from Proteus Asset Management, Unipessoal, Lda. (Altamira) in May 2021. There is no certainty that Whitestar will achieve the same overperformance on profitability on the remaining unsecured positions as Altamira showed in the past.¹

Collection timing HG PT Unipessoal, Lda. (negative). HG PT Unipessoal, Lda. (Hipoges) main past collections were stemming from loan sales and collected cash in court. There is no certainty that Hipoges will be able to keep the pace for future collections which according to the business plan will be to a large extent judicial resolutions.¹

Rating-change drivers

Positive. Continuing servicer outperformance on closed borrowers’ profitability, could positively impact the ratings.

Negative. If servicer performance falls short of Scope’s collection amounts and timing assumptions, this could negatively impact the ratings.

Quantitative analysis and assumptions

Scope analysed cash flows reflecting the transaction’s structural features to calculate each tranche’s expected loss and weighted average life. Scope analysed the assets to produce a rating-conditional cash flow projection of gross recoveries for the portfolio of defaulted loans.

Scope has updated its modelling assumptions to reflect our updated market value decline assumptions and the current performance of the transaction. Scope assumed a 20.1% gross recovery rate over a weighted average life of 3.9 years for class A analysis, and a 26% gross recovery rate over a weighted average life of 3.3 years for the base case analysis.

Sensitivity analysis

Scope tested the resilience of the ratings to deviations in expected recovery rates and recovery timing. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the results for class A notes change compared to the assigned rating in the event of:

• 10% haircut to recoveries, minus two notches.
   
• a one-year recovery lag increase, zero notches impact.

The following shows how the results for class B notes change compared to the assigned rating in the event of:

• 10% haircut to recoveries, minus three notches.
   
• a one-year recovery lag increase, minus one notch.

Rating driver references
1. Transaction documents and reporting (Confidential)

Stress testing
Stress testing was performed by applying Credit-Rating-adjusted recovery rate assumptions.

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ Cash Flow SF EL Model Version 1.1. incorporating default and recovery rate assumptions over the portfolio’s amortisation period, taking into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

Methodology
The methodologies used for these Credit Ratings, (Non-Performing Loan ABS Rating Methodology, 6 August 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021; General Structured Finance Rating Methodology, 14 December 2020), are available on https://www.scoperatings.com/#!methodology/list.
The model used for these Credit Ratings is (Cash Flow SF EL Model Version 1.1.), available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Also refer to 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings has received a third-party asset due diligence assessment/asset audit at closing. The external due diligence assessment/asset audit/internal analysis was considered when preparing the Credit Ratings and it has no impact on the Credit Ratings.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Martin Hartmann, Associate Director
Person responsible for approval of the Credit Ratings: David Bergman, Managing Director
The final Credit Ratings were first released by Scope Ratings on 16 November 2018.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis 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 does not, 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 other 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 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 GmbH at Lennéstraße 5 D-10785 Berlin.