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Moody's assigns a definitive rating to notes issued by LLC "Mortgage Agent Absolut 3", Russian RMBS

December 12, 2014 | Cbonds

Frankfurt am Main, December 12, 2014 -- Moody's Investors Service has assigned a definitive rating to Notes issued by LLC "Mortgage Agent Absolut 3":

....RUB 5,922.36 million Class A Residential Mortgage Backed Fixed Rate Bonds due September 2042, Definitive Rating Assigned Baa3 (sf)
RUB 1,045.123 million Class B Notes were not rated by Moody's.
This transaction will be the third securitisation of mortgages originated by Absolut Bank (B1/NP). The portfolio consists of the Russian residential mortgage loans serviced by Absolut Bank. DeltaCredit Bank (Baa3/P-3) acts as back-up servicer in the transaction. The deal is static, no substitution of loans will take place during the life of the deal.

RATINGS RATIONALE
The rating takes into account, among other factors, the performance of the first two transactions launched by Absolut Bank in 2013, the credit quality of the underlying mortgage loan pool, from which Moody's determined the MILAN Credit Enhancement and the portfolio expected loss, as well as legal considerations and the initial credit enhancement of 20.1% provided to the Class A Notes by the junior notes (15%) and the reserve fund (5.1%). The expected portfolio loss of 7.5% and the MILAN required credit enhancement of 25% serve as input parameters for Moody's cash flow model and tranching model, which is based on a probabilistic lognormal distribution as described in the report "The Lognormal Method Applied to ABS Analysis", published in July 2000.

The most significant driver for the MILAN Credit Enhancement number, which is similar to other MILAN CE numbers in the Russian RMBS transactions was the limited amount of historical information available from the originator, low seasoning of the portfolio (92.2% of the pool are loans originated during the period 2013-2014) and the fact that for about 65.2% of the borrowers income was verified using forms provided by the bank rather than official tax forms and the fact that more than 50% of the pool comprises the loans, which are so-called "high quality application" (when underwriting these loans the Bank does not call the borrower's employer in order to verify borrower's income and employment). The main driver for the expected loss, which is also in line with expected losses assumed for other Russian RMBS transactions, was the limited historical data available on the originator's portfolio and the fact that the performance of the first two securitisations of Absolut is in line with Moody's expectations. The weighted average current loan-to-value (LTV) of 53.3% is in line with the LTV observed in other Russian RMBS transactions.

The transaction benefits from an amortising reserve fund sized at 5.1% of the notes, which has been fully funded at closing. The reserve fund will be replenished before the interest payment on the unrated Class B notes. Subject to conditions such as no draw on the reserve fund, no unpaid principal deficiency, and no servicer default, the reserve fund may amortise 5.1% of the outstanding notes down to a floor of RUB 55.0 mio.

The rating address the expected loss posed to investors by the legal final maturity of the Notes. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

Moody's Parameter Sensitivities: Even if MILAN Credit Enhancement was increased from 25% to 35% and the portfolio expected loss was increased from 7.5% to 9.4%, the model output indicates that the Class A notes would have achieved Baa3.

Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.

The principal methodology used in this rating was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in March 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Issue: Mortgage Agent Absolut 3, class A

StatusCountry of riskMaturity (option)AmountIssue ratings (M/S&P/F)
early redeemedRussia09/11/20425,922,360,000 RUB-/NR/-

Company: Mortgage Agent Absolut 3

Full company nameMortgage Agent Absolut 3 LLC
Country of riskRussia
Country of registrationRussia
IndustryFinancial institutions

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