Fitch Affirms Royal Street NV/SA Compartment RS-2 at 'AAAsf'; Outlook Stable
The transaction is a securitisation of Belgian residential loan receivables originated by AXA Bank Europe SA/NV (ABE). ABE is 100% owned by AXA S.A. (A/Stable/F1), the French insurance group.
KEY RATING DRIVERS
Extension of the Revolving Period
From 5 November 2015, the transaction will revolve for an additional two years (initially the revolving period was expected to last five years), after which the portfolio will become static and amortise. Fitch has analysed potential pool mix shifts during this period based on the portfolio replenishment conditions and the early amortisation triggers and modelled a worst-case portfolio. Due to the limited stop replenishment events, a 1.6% cumulative defaulted loan rate has been added to the portfolio default assumptions applied in the cash flow model.
Property Valuation Issues
Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, which indicated errors related to the property valuations. These findings were considered in the analysis by haircutting all property values by 10%. The agency took comfort from this assumption as well as from the sensitivity analysis to the recovery assumption and more generally from the credit support available to the notes.
Updated Default And Recovery Assumptions
Fitch considered the extended length of the revolving period as well as the issues identified in the third party assessment to update its base case default and recovery assumptions and stressed assumptions. We arrived at a weighted average foreclosure frequency of 30.0% at 'AAAsf' and a weighted average recovery rate of 59.5% at 'AAAsf', resulting in a 'AAAsf' loss rate assumption of 12.1%.
Sufficient Credit Support
Fitch took into account the updated default and recovery assumptions together with the unchanged subordination ratio (16.7%). The analysis showed that the updated available credit support is commensurate with a 'AAAsf' rating for the class A notes.
Credit enhancement for the class A notes is provided by subordination of the class B notes (16.7%) and a reserve fund (1% of the initial notes balance initially and then may amortise to 1.67% of the current notes balance, down to a floor equal to 0.25% of the initial notes balance), which may provide credit enhancement to the extent that it is available to cure any principal deficiency amount.
Additional Transaction Amendments
As of 5 November 2015, some other minor amendments have also been made to the transaction documentation. They include the replacement of BNP Paribas as class A swap counterparty by ABE and a reduction of the minimum seasoning of the loans at the time of their transfer to the issuer to six months (from 18 months previously). Fitch factored this loosened eligibility criteria into its analysis.
Expected impact on the class A notes rating of increased defaults:
Increase base case defaults by 10%: 'AAAsf'
Increase base case defaults by 25%: 'AA+sf'
Increase base case defaults by 50%: 'AA-sf'
Expected impact on the class A notes rating of decreased recoveries:
Reduce base case recovery by 10%: 'AAAsf'
Reduce base case recovery by 25%: 'AAsf'
Reduce base case recovery by 50%: 'AA-sf'
Expected impact on the class A notes rating of increased defaults and decreased recoveries:
Increase default base case by 10%; reduce recovery base case by 10%: 'AA+sf'
Increase default base case by 25% and reduce recovery base case by 25%: 'AA-sf'
Increase default base case 50% and reduce recovery base case by 50%: 'BBB+sf
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated errors or missing data related to the property values information. These findings were considered in this analysis by assuming a 10% haircut to all property values.
Fitch conducted a review of a small targeted sample of the originator's origination files and found inconsistencies or missing data related to the properties information. These findings were considered in this analysis by assuming the 10% haircut to all property values mentioned above.
Overall and together with the assumptions referred to above, Fitch's assessment of the asset pool 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.
- Loan-by-loan data provided by ABE as at end-June 2015
- Transaction reporting provided by ABE as at end-June 2015
- Historical performance data provided by ABE as at end-March 2015.