January 23, 2007 | Cbonds
|Fitch Ratings-London/Milan-22 January 2007: Fitch Ratings has today assigned Ukraine Mortgage Loan Finance No.1 plc's Class A note an expected 'BBB-' (BBB minus) rating and Class B notes an expected rating of 'B+'. The Class C notes and the step-up interest due on Class A and B notes after the step up date (30 April 2014) are unrated. This is the first cross-border RMBS transaction out of Ukraine. The originator and seller of the mortgage portfolio is Privatbank JSCC (rated 'B'/'B'/Positive Outlook), the largest financial institution in the country. The final ratings are contingent on the receipt of final documents conforming to information already received.|
The transaction is a USD180 million securitisation of first-lien US dollar-denominated, Ukrainian law residential mortgage loans together with their ancillary rights. The ratings address timely payment of Class A interest, ultimate payment of Class B interest and ultimate payment of principal at the final legal maturity of the notes (30 December 2031) in accordance with the terms of the notes. The ratings do not address payment of step-up interest on the notes.
The expected ratings are based on the quality of the collateral, available credit enhancement, the underwriting and servicing capabilities of the originator and the legal structure of the transaction. Initial credit enhancement of 29.5% for the Class A notes will be provided by subordination of the Class B notes (20.5%), and the Class C notes (5%). A reserve fund of 4% is in place to cover defaults and potential liquidity shortfalls, while separate reserve funds are in place to cover set-off risks (1.07%) and hardening periods under a Political Risk Insurance policy (4.5%). A non-amortising reserve of 0.4% covers potential liquidity shortfalls due to commingling.
The mortgage assets are denominated in US dollars, which is common in Ukraine. As the notes are also denominated in US dollars, the transaction does not benefit from any exchange rate swap. However, as obligor income is denominated in local currency the analysis takes into account the effect of currency devaluation on loan performance. The Class A notes are rated above the 'BB-' (BB minus) Country Ceiling for Ukraine, and consequently the structure benefits from a political risk insurance that mitigates the risks associated with any restriction on the transfer of hard currency out of the country.
The transaction may also be vulnerable to event risks such as government intervention, including expropriation of property and a possible redenomination of the currency in which the assets are denominated. According to Nick Eisinger, Head of Emerging Markets Structured Finance at Fitch, "While these factors become more risky when rating above the sovereign rating and Country Ceiling, in Fitch's view, these risks are not associated with a rating stress of up to three notches above the Country Ceiling for this transaction." Nonetheless, this creates some credit linkage between the transaction rating and the 'BB-' (BB minus) rating of the Ukrainian sovereign.
The Ukrainian legal system is in a state of evolution, and the legal environment governing securitisation remains untested. The assignment of the assets and their ancillary rights relies on provisions on the Ukrainian general law as no specific securitisation law currently exists in Ukraine. The transaction legal opinions are able to confirm that the essential components of a true sale are achieved under the transaction documents, but they do carry some relatively heavy qualifications. Again, while the structural features of the transaction adequately mitigate these uncertainties, the ratings are nonetheless credit-linked to the rating of the originator.
|Full company name||PrivatBank PJSC|
|Country of risk||Ukraine|
|Country of registration||Ukraine|