IM GBP EMPRESAS VI, FTA is a cash flow securitisation of a portfolio of unsecured loans, EUR 3bn at closing, granted to Spanish small- and medium-sized enterprises and self-employed individuals. Grupo Banco Popular (Banco Popular Español SA and its fully-owned subsidiary Banco Popular Pastor SA) originated the assets to finance regular business needs of customers in Spain. The transaction closed on 30 March 2015.

Scope Ratings assigned definitive ratings to the notes issued by IM GBP EMPRESAS VI, FTA as follows (balances as of July 2015):

Class A (ISIN ES0305064000), EUR 1,944.26m (EUR 2,340m at closing): assigned new rating AA_SF

Class B (ISIN ES0305064018), EUR 660m: assigned new rating B+_SF
 

RATING RATIONALE

The ratings reflect the legal and financial structure of the transaction; the quality of the underlying collateral in the context of the Spanish economy; the capability of Grupo Banco Popular as the servicer; counterparty risk exposure to Santander as the account bank and Banco Popular as paying agent; and the management ability of Intermoney de Titulización SGFT SA.

Scope believes the credit enhancement (CE) provided by the structure (28.8% as of July 2015 and 25% at closing) is sufficient to protect the class-A notes against losses from the portfolio. CE takes the form of overcollateralisation from subordination of the class B and a subordinated loan used to fund a cash reserve; and substantial excess spread. In addition, the short-term outlook on the Spanish economy reflects positively on the transaction due to its expected fast amortisation (initial portfolio weighted average life (WAL) of 2.3 years with no prepayments or defaults).
 

KEY RATING DRIVERS

Improving Spanish economy (positive). The slowly improving Spanish economy will benefit the class A notes, as the portfolio performance reflects the positive conditions. The impact on the class B notes is less certain due to the recovery’s fragility and significant fundamental imbalances still in the Spanish economy.

Fast amortisation (positive). Class A bears a very short risk exposure to counterparties and possible macroeconomic deterioration due to its 1.4 years expected WAL under a conservative zero prepayments assumption.

High excess spread (positive). The high excess spread available from the asset portfolio allows the class A to only see the first loss at a portfolio default rate of 30.7%. Excess spread is trapped by the structure to provision defaults.

Strong liquidity coverage (positive). The structure provides strong liquidity protection to ensure timely interest payment. The structure features a dedicated cash reserve of 3% of the notes balance, which cannot be depleted by defaults, and also a combined priority of payments.

Stressed performance references (positive). Scope calibrated its forward-looking assumptions of the portfolio analysis with vintage data from 2004 to 2014, a period that contains years of high stress for Spanish SMEs. Scope also considered a long-term economic cycle adjustment to reduce the resulting procyclicality for the class A rating from these stressed point-in-time performance assumptions.

Post-crisis originations and granular portfolio (positive). The portfolio was originated largely in 2013 and 2014 with no significant obligor, sector or geographic concentrations. The loans were originated predominantly under tighter post-crisis standards with short maturities.

Plain vanilla structure (positive). The deal features a swapless, strictly-sequential, two-tranche structure with a combined priority of payments and a liquidity cash reserve available to repay principal at maturity.

Weak selection criteria (negative). The portfolio criteria allows for weak obligors in the portfolio. At closing, 0.71% of the final portfolio balance was more than 30 days-past-due (dpd) and up to 90 dpd. Scope increased its base case lifetime portfolio default-rate assumption to 6.24% from the historical references obtained from internal probability of default and vintage data (4.6% and 5% respectively) to address this risk.

Loans with principal grace (negative). The portfolio contains contracts originally granted with an interest-only period of six months on weighted average (68.4% of the initial portfolio balance was ever under grace). Scope believes this is a sign of aggressive origination which could result in a weaker obligor base. Scope considers high volatility (70% coefficient of variation) of portfolio default rates to address the risk of these loans being distressed under a macroeconomic downturn.

Unhedged large fixed-floating mismatch (negative). The notes receive variable interest whereas 49.6% of the initial asset balance pays a fixed rate. This results in excess spread reduction and negative carry in severe rising interest rate scenarios. Scope applied a stressed interest rate curve in our analysis, incorporating our expectation of GDP and inflation developments in the eurozone. The short life of the class A also mitigates this risk.

Vintage data relevance (negative). Scope believes the vintage data provided for the analysis is only an approximate representation of the securitised assets. Consequently, we also rely on internal PDs provided by the originator and sensitivity analysis when building the portfolio-modelling default-rate distribution.

Latent counterparty risk (negative). The exposure to Banco Santander as account bank would not be mitigated in the structure if Scope were the only rating agency to downgrade the bank below BBB in a hypothetical future. Scope considers this scenario unlikely over the short expected weighted-average life of the class A notes. Scope has a A+/Outlook Stable rating on Santander.

Unrated paying agent (negative). Scope has no public rating for Banco Popular. Operational and commingling risks from functions performed by Popular are mitigated by: i) the sufficient credit quality of the bank as assessed by Scope; ii) the short funds-holding periods for the paying agent and servicer; and iii) the capacity and experience of the management company to replace counterparties if they compromised the performance of the notes.

Unsecured recoveries (negative). The loans in this portfolio do not have mortgage guarantees that allow for fundamental recovery calculation, even when they typically feature some form of security such as a personal guarantee of the business owner. Scope estimates a base case recovery assumption on hard defaults of 27% and a 90 dpd cure rate of 15% based on historical recovery performance.

The rating report will contain additional information and will be freely available on www.scoperatings.com. Scope analysts are available to discuss all details of the rating analysis and risks this transaction is exposed to.

REGULATORY AND LEGAL DISCLOSURES

Important information

Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013.

Responsibility

The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund.

The rating analysis has been prepared by Sebastian Dietzsch, Lead Analyst. Dr. Stefan Bund, Committee Chair, is the analyst responsible for approving the rating.

Rating history

The rating concerns existing financial instruments which were evaluated for the first time by Scope Ratings AG.

Information on interests and conflicts of interest

The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the originator of the assets.

As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of Information for the rating

Offering circular and contracts; originator presentation; delinquency and recovery vintage data; loan-by-loan final-portfolio information; legal opinion; and portfolio-audit report all as provided by the originator of the assets. And additionally the performance reports produced to date by the management company.

Scope Ratings considers the quality of the available information on the evaluated entity to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication

Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology

The methodology applicable for this rating is “SME CLO Rating Methodology”, dated May 2015, and “Rating Methodology for Counterparty Risk in Structured Finance Transactions”, dated August 2015. Both files are available on on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability

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