Rating action

The transaction comprises the following instruments:

Class A (ISIN PTHEFZOM0001), EUR 13m outstanding amount: upgraded to A+_SF from BBB+_SF

Class B (ISIN PTHEF1OM0004), EUR 14m outstanding amount: upgraded to BB-_SF from 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 2022.

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 2022 collection period, aggregate gross collections were EUR 94.3m, which represents 100% of the original business plan expectations of EUR 94.3m. Total available gross collections are split between legal proceeds (65.5%), amicable resolution proceeds (19.7%), REO sales (12.2%) and other type of collections (2.6%).

Around 36.5% of gross collections (EUR 34.4m) stem from closed debtors (523 debtors) that represent 21.3% of total number of borrowers. Most closed debtors’ gross collections are legal proceeds (48.2%) and amicable resolution proceeds (39.7%) while remainders are split between REO proceeds (5.4%) and other types of collections (6.8%). 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 84.5% of the class A notes’ notional has amortised. Class A is strongly over hedged with the cap notional being at EUR 74m whereas class A is only EUR 13m outstanding.

The transaction’s cumulative net collection ratio (net of expenses and servicing fees) and NPV profitability ratio stand at 114.5% and 167.8% respectively, as at the May 2022 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 2022) aggregated lifetime gross collections (including actual collections) have been revised upwards (0.5%) compared to the initial business plan. At the same time the lifetime net collections have been revised upwards (5.3%), well exceeding the marginal increase 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.

There are three classes of notes with fully sequential principal amortisation: senior class A, mezzanine class B, and junior class J. The class B interest rate payments rank senior to class A principal. However, they will be subordinated if the cumulative amounts collected are around 10% below the level indicated in the servicer’s business plan, or if the present value cumulative profitability ratio falls below 90%.

The class R note is used to fund the liquidity reserve at issuance. Class R interest is paid senior to class A interest and class R is amortised with the funds released from the liquidity reserve when it amortises.

Rating rationale

The rating is driven by the transaction’s actual and expected performance as reflected in Scope’s modelling assumptions. Scope’s recovery assumptions consider transaction-specific performance, developments in macroeconomic fundamentals, and peer transaction benchmarks. All counterparties continue to support the ratings, as there have not been material changes on counterparty risk since closing.

Key rating drivers

Amortisation of class A (positive). Class A has amortised to 15.5% of its notional outstanding at closing, resulting in reduced cost of carry. Faster-than-expected deleveraging has resulted in a high coverage of expected future collections of 268% compared to around 134% at closing.¹

Strong performance (positive). Collections have come in much faster than Scope’s closing expectations considered in the initial analysis of the Class A and Class B notes. Profitability on closed positions, and already on part of the still open positions, has also exceeded Scope’s expectations.¹

Liquidity protection (negative). The limited size of the cash reserve -equal to 3% of the class A notes- constrains the rating of the class A notes at their current level. The reserve would cover for about 12 months of senior costs and class A interest in the event of a servicing disruption. This coverage would be insufficient to achieve a higher rating, in accordance with our General Structured Finance Rating Methodology. Class B noteholders are not benefiting from the cash reserve and will continue to rely solely on portfolio proceeds with respect to interest payments.¹

Rating-change drivers

Positive. Continuing servicer outperformance on closed borrowers’ profitability, could positively impact the ratings for class B. Class A will continue to be constrained for liquidity reasons.

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’s forward-looking assumptions based on the remaining portfolios gross book value of EUR 283.3m (adjusted for borrowers flagged as closed by the servicers) assume a 12.3% gross recovery rate over a weighted average life of 3.2 years for the class A analysis, and a 20.8% gross recovery rate over a weighted average life of 2.5 years for the base case analysis.

Sensitivity analysis

Structured finance only 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, zero notches impact.
   
• 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, zero notches impact.
   
• a one-year recovery lag increase, zero notches impact.

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 the relevant asset assumption, 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, 5 August 2022; Counterparty Risk Methodology, 14 July 2022; General Structured Finance Rating Methodology, 17 December 2021), available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.

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 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: Antonio Casado, Executive Director
The final Credit Ratings were first released by Scope Ratings on 16 November 2018. The Credit Ratings were last updated on 2 November 2021.

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
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