DBRS Ratings Limited (DBRS) confirmed its ratings assigned of Hefesto, STC, S.A. (the Issuer) as follows:
-- Class A at BBB (sf)
-- Class B at B (low) (sf)
The notes are backed by a portfolio of secured and unsecured Portuguese non-performing loans originated by Caixa Economica Montepio Geral (CEMG). The CEMG Group is part of the Montepio Group. The majority of loans in the portfolio defaulted between 2011 and 2017 and are in various stages of the resolution process. The secured loans are serviced by Whitestar Asset Solutions S.A. (Whitestar). The unsecured loans are serviced by HG PT, Unipessoal, Lda (Hipoges). Where a borrower has both secured and unsecured loans, the servicing is undertaken by Whitestar.
Given the nature of the collateral and the defaulted status of all loans included in the portfolio, the collections received will be the primary source of payment under the notes. As a result, there is a significant reliance on Whitestar and Hipoges’ ability and performance as servicers in executing their respective business plans. DBRS views the granularity of the portfolio, the presence of a cash reserve and the experience of the servicers as mitigating factors with regard to this risk.
The ratings are based on DBRS’s analysis of the projected recoveries of the underlying collateral, the historical performance, expertise of the servicers, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with J.P. Morgan AG and the transaction’s legal and structural features. In its analysis, DBRS assumed that all loans are disposed through both a judicial and an extra-judicial resolution strategy. Both DBRS’s timing and value stresses are based on the historical repossessions data of the servicers, Whitestar and Hipoges. DBRS’s BBB and B (low) initial ratings assumed a haircut of 23.6% and of 4.9%, respectively, to the servicer’s business plans for the portfolio.
As of the May 2018 investor report, the principal amount outstanding of the Class A and Class B notes was equal to EUR 104.1 million and EUR 19.5 million, respectively. The balance of the Class A notes amortised by approximately 16% since issuance. The Class B notes will not be repaid until the Class A notes are repaid in full. The Class J notes do not receive any issuer available funds until the Class A and Class B notes are repaid in full. The current aggregated transaction balance is equal to EUR 157.4 million.
As per the investor report of May 2018, the actual cumulative gross disposition proceeds (GDP) accounted for EUR 22.6 million in the first seven months after closing. The servicers’ initial business plan assumed cumulative net GDP equal to EUR 6.5 million, which is lower than the actual amount collected to date.
The transaction cash flow structure was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating European Non-Performing Loans Securitisations”.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
An asset and a cash flow analysis were both conducted.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.
The sources of data and information used for these ratings include information from Whitestar Asset Solutions S.A., HG PT, Unipessoal, Lda and Caixa Economica Montepio Geral.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
This is the second rating action since the Initial Rating Date (7 November 2017).
The lead analyst responsibilities for this transaction have been transferred to Mattia Pauciullo.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class A notes to BB (high).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a downgrade of the Class A Notes to BB (low).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class B Notes to below B (low).
-- DBRS concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would each lead to a downgrade of the Class B Notes to below B (low).
For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Mattia Pauciullo, Senior Financial Analyst, European Structured Finance
Rating Committee Chair: Christian Aufsatz, Managing Director, European Structured Finance
Initial Rating Date: 7 November 2017
DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies
-- Rating European Non-Performing Loans Securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- European CMBS Rating and Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375