24. May 2017 Rating news – CLO
Scope upgrades IM GBP EMPRESAS VI Series B tranche to BBBSF – Spanish SME ABS
• EUR 768.5m debt affected • Rating action driven by robust performance of securitised Spanish unsecured assets originated by Banco Popular
Scope Ratings has taken the following rating actions on the notes issued by IM GBP EMPRESAS VI:
Series A (ISIN: ES0305064000), EUR 108.5m: affirm at AAASF
Series B (ISIN: ES0305064018), EUR 660m: upgrade to BBBSF, from BBSF
The rating actions reflect the increased credit enhancement for both notes and the solid performance of the collateral. Current portfolio defaults without recoveries amount to 0.87% of the initial balance and the current annual prepayment rate is 22.3%, according to the issuer report dated 31 March 2017. The rating actions also factor the macroeconomic outlook for the Spanish economy. Scope expects the Spanish economic recovery will continue in the short term.
Affirmation on the Series A notes reflects that the tranche has almost completely amortised to 4.6% of its initial outstanding balance. Credit enhancement has increased to 97.6% (up from 54.9% as of the previous monitoring date of 7 October 2016). The weighted average life has reduced to 0.3 years from 1.4 years at closing.
The upgrade on the Series B notes accounts for the increase in credit enhancement to 11.7% (up from 6.6% of the previous monitoring).
Scope has determined that the ratings are not affected by the counterparty credit risk exposure to Banco Santander (AA-/Stable), the account bank in the transaction.
Scope believes that a potential sale of Banco Popular, as recently publicly announced, is unlikely to materially affect the transaction. This is because the transaction’s credit counterparty risk exposure to the bank is limited to the roles of paying agent and servicer. In addition a potential acquirer will likely be an experienced and systemic financial institution.
Key rating drivers
Improving Spanish economy. The slowly improving Spanish economy has benefited the Series A notes, as the portfolio performance reflects the positive conditions. The impact on the Series B notes is less certain but is expected to follow a similar trend for the transaction’s remaining life.
Fast amortisation. The transaction has amortised significantly after 25 months. The outstanding underlying collateral remains granular with more than 21,257 exposures outstanding. Scope expects amortisation to slow gradually as prepayments are phased out.
Limited delinquency levels. Total delinquencies are 5.05% of the current balance, of which 35.4% relate to ‘30 days’ delinquencies that are mostly technical and high likely to be subsequently cured; ‘above 90 days’ delinquencies are rising but remain low at 1.41% of the current portfolio. Defaults are 0.87% of the initial portfolio balance.
Unsecured recoveries. The loans in this portfolio do not have mortgage guarantees that allow for fundamental recovery calculation, even when they typically feature some form of security such as a personal guarantee of the business owner.
Key rating-change drivers
Fast recovery of employment in Spain would support lower default-rate assumptions. Scope does not expect this fast recovery of employment to occur during the remaining life of the transaction.
Crystallisation of weak-obligor risk would impact the Series B notes. This risk lies mainly beyond the risk horizon of Scope’s positive outlook for the Spanish economy. Recovery stagnation or even a new recession could again create significant stress for SMEs.
Scope has applied the same key modelling assumptions as at the date of closing. Scope has 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%.
Scope has used latest monthly collateral report dated 31 March 2017 and last quarterly note payment report dated 24 April 2017.
Scope tested the resilience of the rating against deviations of the main input parameters: the portfolio mean default rate and the portfolio recovery rate. 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 quantitative results for each rated tranche deviate from the assigned ratings when the portfolio’s expected default rate is increased by 50% or the portfolio’s expected recovery rate is reduced by 50%, respectively:
- Serie A: sensitivity to default rate assumptions, zero notches; sensitivity to recovery rates, zero notches;
- Serie B: sensitivity to default rate assumptions, one notch; sensitivity to recovery rates, one notch.
About the transaction
IM GBP EMPRESAS VI is a EUR 3,000m true-sale securitisation of a portfolio of unsecured loans granted to Spanish SMEs and self-employed individuals to finance diverse business-related needs. The assets were originated by Banco Popular and Banco Pastor. The latter is 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.
Legal and regulatory disclosures
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
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.
The rating analysis has been prepared by Sebastian Dietzsch, Lead Analyst Responsible for approving the rating: Guillaume Jolivet, Committee Chair
(Instrument | ISIN | Date | Rating action | Rating)
ES0305064000 | 24.08.2016 | Upgrade | AAASF
ES0305064018 24.08.2016 Upgrade BBSF
ES0305064000 | 03.09.2015 | New | AASF
ES0305064018 03.09.2015 New B+SF
ES0305064000 | 21.08.2015 | Preliminary | (P) AASF
ES0305064018 21.08.2015 Preliminary (P) 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
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, the rated entities’ agents, third parties and Scope internal sources. Monthly investor reports produced by InterMoney Titulización Sociedad Gestora de Fondos de Titulización S.A, covering the first twenty five months since the closing of the transaction up to the report dated March 2017; 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.
The methodologies applicable for this rating are the ‘General Structured Finance Rating Methodology’ dated August 2016, the ‘Methodology for Counterparty Risk in Structured Finance’ dated August 2016, and the ’SME ABS Rating Methodology’ dated June 2016. Files are available on www.scoperatings.com. Additionally, the new issue report IM GBP EMPRESAS VI – Rating Report explains the detailed 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.
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