Fitch Affirms Ukraine Mortgage Loan Finance No. 1 plc
The transaction is a securitisation of Ukrainian residential mortgages originated by PJSC CB Privatbank.
KEY RATING DRIVERS
Fitch downgraded the originator to Restricted Default (RD) from 'C' on 18 September 2015 following completion of the bank's USD200m Eurobond restructuring (see Fitch Downgrades Ukraine's Privatbank to 'RD'). The agency expects to review and upgrade Privatbank's IDR once sufficient information is available on its post-restructuring credit profile. However, the ratings will likely remain very low, given high country risks and Ukraine's 'CCC' Country Ceiling.
Fitch's emerging markets structured finance criteria allow a rating of up to six notches above the originator's Issuer Default Rating (IDR). The agency has affirmed the notes' rating because even an upgrade to the lowest possible rating (C) would be sufficient to support the 'BB-sf' rating of the note.
The performance of the underlying assets since the last review in December 2014 has deteriorated. The cumulative default rate has increased to 7.7% from 5.9% of the initial pool balance (in absolute terms total defaults equal USD13.8m), while the cumulative loss rate is currently 3.8% (USD6.8m) compared with 2.0% in December 2014.
However, the class B notes have built up a high level of credit support, provided by overcollateralisation and the cash reserve. This means that the notes can withstand even a material deterioration in portfolio performance and, consequently, asset performance is no longer a driver of the rating. Due to this, Fitch has not conducted an asset analysis according to its EMEA RMBS criteria.
The loans are US dollar-denominated. However, the majority of the borrowers receive their income in the national currency (hryvna). The hryvna has depreciated significantly over the past year. Together with a weakening economy and political uncertainty, this has had a negative impact on the borrowers' ability to service their loans. However, the observed losses are still significantly below the available credit protection.
A revision of Ukraine's Country Ceiling could result in a revision of the highest achievable rating for the class B notes.
Further depreciation of the local currency in relation to the US dollar, continuing political uncertainty and rising unemployment could lead to a further increase in portfolio losses. However, the large credit protection for the class B notes would enable them to survive even a material performance deterioration.
In the event of Privatbank's default as servicer, the reserve fund provides liquidity coverage for a lengthy period. Fitch expects that during this time a replacement servicer would be found to enable the transfer of collections to the issuer's account.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.
Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.
Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Transaction reporting provided by Privatbank as of October 2015.