DBRS Ratings GmbH (DBRS) confirmed its AAA (sf) rating on the Notes issued by Loan Invest NV/SA. Compartment SME Loan Invest 2017 (the Issuer).
The rating on the Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date (April 2051).
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of February 2019 payment date.
-- Portfolio default rates, recovery rates and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the Notes to cover the expected losses at the AAA (sf) rating level.
The Issuer is a cash flow securitisation transaction collateralised by a portfolio of loans originated and serviced by KBC Bank NV (KBC) within the framework of small and medium-sized enterprises (SMEs) in Belgium.
PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of the 15 February 2019 payment date, the overall portfolio consisted of 39,214 loans with an aggregate principal balance of EUR 3,870 million. The portfolio is performing within DBRS’s expectations. As of the payment date, cumulative defaulted loans represented 0.5% of the initial portfolio balance, up from 0.3% one year ago.
DBRS conducted a loan-by-loan analysis on the remaining pool and maintained its annual base case probability of default rate (PD) at 1.76% and updated its recovery rate assumptions on the outstanding portfolio to 37.3% at the AAA (sf) rating level.
As of February 2019, the CE of the Notes was 31.0%, supported by a subordinated loan. A part of the subordinated loan’s proceeds was used to fund the reserve fund (RF). The RF does not amortise and it is available to cover interest shortfalls on the Notes. The RF is currently at its target level of EUR 56 million, which is 1% of the total initial portfolio. The CE is at the same level as at closing, as principal is currently amortising pro rata between the Notes and subordinated loan. If a sequential trigger event occurs, then the sequential amortisation will be applied.
KBC acts as account bank provider and swap counterparty for the transaction. Based on the account bank reference rating of AA (low), which is one notch below the DBRS public Long-Term Critical Obligations Rating (COR) of KBC at AA, the downgrade provisions outlined in the transaction documents, and other mitigants factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to KBC to be consistent with the rating of the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology. KBC’s COR is consistent with the first rating threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Rating CLOs Backed by Loans to European SMEs”.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
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/333487/rating-sovereign-governments.pdf.
The sources of data and information used for this rating include reports provided by KBC and loan-level data from the European DataWarehouse GmbH.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, 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 this rating to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The latest rating action on this transaction took place on 26 March 2018, when DBRS confirmed its rating on the Notes at AAA (sf).
The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- Recovery Rates Used: Base case recovery rates of 37.3% at the AAA (sf) stress level for the Notes, 10% and 20% decrease in the base case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.
DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Notes to AA (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a downgrade of the Notes to AA (high) (sf).
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Alfonso Candealas, Senior Vice President
Rating Committee Chair: Vito Natale, Managing Director
Initial Rating Date: 7 April 2017
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Geschäftsführer: Detlef Scholz
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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 CLOs Backed by Loans to European SMEs
-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structure Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Interest Rate Stresses for European Structured Finance Transactions
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
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.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.