DBRS Ratings GmbH (DBRS Morningstar) 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 the 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 and defaults, as of the February 2020 payment date.
-- Base case probability of default (PD), recovery rates, and updated default rates on the remaining receivables.
-- The credit enhancement available 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-size enterprises (SMEs) in Belgium.
PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of the 15 February 2020 payment date, the overall portfolio consisted of 30,385 loans with an aggregate principal balance of EUR 3,095 million. The portfolio is performing within DBRS Morningstar’s expectations. As of the payment date, cumulative defaulted loans represented 0.7% of the initial portfolio balance, up from 0.5% one year ago.
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool and maintained its annual base case PD rate at 1.76% and updated its recovery rate assumptions on the outstanding portfolio to 37.6% at the AAA (sf) rating level.
As of February 2020, the credit enhancement of the Notes was 31.7%, 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. There is currently pro rata amortisation between the Notes and subordinated loan. If a sequential trigger event occurs, then amortisation will be applied sequentially.
KBC acts as account bank provider and swap counterparty for the transaction. Based on the account bank reference rating of AA, which is one notch below the DBRS Morningstar public Long-Term Critical Obligations Rating (COR) of KBC at AA (high), the downgrade provisions outlined in the transaction documents, and other mitigant factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating of the Notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology. KBC’s COR is consistent with the first rating threshold as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.
DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.
For additional disclosure related to the impact of Coronavirus (COVID-19) on DBRS Morningstar Methodologies please see the following link: https://www.dbrsmorningstar.com/research/357883/dbrs-morningstar-provides-update-on-rating-methodologies-in-light-of-measures-to-contain-coronavirus-disease-covid-19.
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 Morningstar 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 “Global Methodology for Rating Sovereign Governments” at:
The sources of data and information used for this rating include reports provided by KBC and loan-by-loan data from the European DataWarehouse GmbH.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 26 March 2019, when DBRS Morningstar confirmed its rating on the Notes at AAA (sf).
Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- Probability of Default Rates Used: Base Case PD of 1.76%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: Base Case Recovery Rates of 37.6% at the AAA (sf) stress level for the Notes, a 10% and 20% decrease in the Base Case Recovery Rates.
DBRS Morningstar 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 Morningstar 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 Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 7 April 2017
DBRS Ratings GmbH
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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
-- Rating CLOs and CDOs of Large Corporate Credit
-- Derivative Criteria for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Structured Finance Surveillance Methodology
A description of how DBRS Morningstar 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 firstname.lastname@example.org.