Moody's has assigned definitive ratings to notes issued by Closed Joint Stock Company "Mortgage Agent VTB24-1", Russian RMBS
December 28, 2012 Moody's Investors Service
Approximately RUB 15,800.0 million of Debt Securities affected
London, 28 December 2012 -- Moody's Investors Service has assigned definitive long-term credit ratings to Notes issued by Closed Joint Stock Company "Mortgage Agent VTB24-1":
RUB 15,800.0M Class A Residential Mortgage Backed Fixed Rate Bonds due 2042, Definitive Rating Assigned Baa1 (sf) RUB 2,800.0M Class B Notes were not rated by Moody's.
This transaction is the second securitisation of mortgages originated by KIT Finance (NR). The securitized portfolio consists of the Russian residential mortgage loans and has been purchased from KIT Finance by VTB24 (Baa1/P-2) directly onto the balance sheet of the issuer. VTB24 also performs the roles of the servicer and the cash manager in this transaction as well as provides financial assistance to the issuer as described below. This exposes the notes to the credit of VTB24: all things being equal, a downgrade of VTB24 current rating will lead to a downgrade of the notes.
Moody's assigned provisional ratings to these notes on 21 December 2012. The rating takes into account 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 the transaction structure and legal considerations. The expected portfolio loss of 9% and the MILAN required credit enhancement of 32% 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 higher than other MILAN CE numbers in the Russian RMBS transactions was the limited amount of historical information available for the originator and the lack of certain information for the securitized mortgages, such as the method of borrower income verification. The main driver for the expected loss, which is also higher than the expected losses assumed for other Russian RMBS transactions, was the limited historical data available on the originator's portfolio. The weighted average current loan-to-value (LTV) of 61,6% based on minimum of the estimated purchase price and valuation is slightly higher than the LTV observed in other Russian RMBS transactions.
The transaction benefits from an non-amortising reserve fund fully funded at closing at 3.5% of the initial note balance. The reserve fund is replenished before the interest payment on the unrated Class B notes. In certain situations, such as if the issuer does not have sufficient funds to make necessary payments under the notes, VTB24 is obligated to provide financial assistance to the issuer by repurchasing defaulted mortgages from the transaction. The funds received from this repurchase may be used to fund the reserve fund to its target amount, pay interest or repay the principal under the notes. The amount of the financial assistance is RUB 5.58 billion (30% of the initial note balance).
Ratings address the expected loss posed to investors by the legal final maturity of the notes. Moody's ratings only address the credit risk associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.
The V Score for this transaction is High, which is in line with the score assigned for the Russian RMBS sector. The High V-Score reflects uncertainty associated with legal and regulatory environment in the sector, limited experience of the originator in the securitisation market, and limited performance data available for the book of the originator. V-Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. High variability in key assumptions could expose a rating to more likelihood of rating changes. The V-Score has been assigned accordingly to the report "V-Scores and Parameter Sensitivities in the Major EMEA RMBS Sectors" published in April 2009.
Moody's Parameter Sensitivities: If the portfolio expected loss was increased from 9% to 11.25% or MILAN Credit Enhancement was increased from 32% to 38.4%, the model output indicates that the Class A notes would not have achieved Baa1, but would have achieved Baa2.
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 in Europe, Middle East, and Africa published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Other Factors used in this rating are described in Key Legal and Structural Rating Issues in Russian Securitisation Transactions published in June 2007.
In rating this transaction, Moody's used a cash flow model to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) the loss derived from the cash flow model in each default scenario for each tranche. Moody's also considered scenarios where the Mortgage Agent has defaulted as a result of nonpayment of senior fees or interest on the notes, asset-liability mismatch, or insufficient mortgage coverage. In this case, Moody's assumed that the liquidation of assets occurred and the notes were repaid according to the post-enforcement waterfall using the proceeds of the asset liquidation assuming a recovery rate of 50%.
As such, Moody's analysis encompasses the assessment of stressed scenarios.
Country of riskRussia
Redemption (put/call option)
М/S&P/F— / — / —
Company — Mortgage Agent VTB 24 - 1
Full nameZAO Mortgage Agent VTB 24 - 1