The rating action is as follows:

Senior Bond (ISIN PLGNBAT00014), PLN 500.0m: definitive rating AAA_SF

The issuance is a true-sale cash securitisation of Polish auto loans originated in the ordinary course of business by Getin Noble Bank SA (Getin). The transaction includes a 24-month revolving period that concludes in July 2019. The Senior Bond (the bond) pays a coupon of 3-month WIBOR+1.2%, has a credit enhancement of 30.4% and a final legal maturity of 16 July 2030. The closing portfolio comprises approximately 49% of loans to private individuals, and 51% to SMEs. The portfolio is expected to evolve towards a higher share of loans to individuals as a result of replenishments. The weighted average interest rate of the current portfolio is expected to decline from 6.9%, due to new, lower-yielding loans entering the portfolio during the revolving period.

Rating rationale

The rating reflects: i) the legal and financial structure of the transaction; ii) the quality of the underlying collateral in the context of the robust Polish macroeconomic environment; iii) the ability of the originator and servicer, Getin; and iv) the counterparty exposure to Citibank N.A. London Branch as the account bank and KDPW, the Polish central clearinghouse, as the paying agent.

Credit enhancement of i) 30.4% subordination and ii) excess interest from the assets protect the bond against losses from the portfolio. Following the revolving period, the Senior Bond rating benefits from the sequential amortisation schedule and the amortising nature of the assets in the portfolio. The bond is expected to amortise over a weighted average life of 1.8 years from the end of the revolving period.

The short-term outlook for the Polish economy is positive for the transaction’s expected asset performance. Scope has determined that sovereign risk does not constrain the ratings of the bond over its expected life.

The transaction has counterparty risk exposure to Getin as the servicer, Citibank London Branch as the account bank and KDPW as the paying agent. The counterparty risk is mitigated by the credit quality of the counterparties, mechanisms in the structure such as regular cash sweeps and back-up arrangements, as well as the limited time exposure. In addition, the account bank is subject to replacement should it lose its BBB rating. Scope has assessed the credit quality of Getin and KDPW using public information, as well as that of Citibank London Branch taking the bank’s public credit ratings into consideration.

Key rating drivers

Credit enhancement (positive). The bond benefits from 30.4% credit enhancement provided by subordination and the cash reserve, which protects against losses from the portfolio. 

Excess spread (positive). The asset portfolio will generate substantial spread in excess of interest due on the bond and transaction fees. After applying stresses accounting for 1% of senior fees, Scope estimates an excess spread at closing of 3.8%. Considering the minimum portfolio covenant of 2.0% over 3-month WIBOR, excess spread still amounts to 0.7%.

Robust Polish economy (positive). The Polish economy will prove advantageous for the Senior Bond. We expect a positive effect on portfolio performance, as a result of improving affordability of credit for the obligors. The solid economic environment is demonstrated by strong GDP growth and rising employment in combination with sound support from the private sector.

Back-up servicer (positive). Operational risk arising from a servicer default is mitigated by the appointment of Idea Bank S.A. at closing as standing back-up servicer.

Short default definition (positive). The ‘90 days overdue’ default definition allows the structure to react quickly to asset deterioration to provision for defaults by using excess spread.

Short lifetime exposure (positive). The bond has an expected weighted average life of 3.8 years at a 0% constant prepayment rate, limiting exposure to counterparties and possible macroeconomic deterioration.

Simple and transparent structure (positive). The deal has a swapless, strictly sequential structure, two tranches and a subordinated loan, with a combined priority of payments and an adequate cash reserve.

Set-off risk (positive). Set-off risk is mitigated by a set-off reserve funded by Getin. The facility is resized and refunded according to set-off exposure, which is updated on a monthly basis.

Lifetime default rate (negative). The long risk horizon expected for the portfolio results in a relatively high expected portfolio default rate of 6.8%, based on Getin’s vintage data.

Low recovery rates (negative). The high loan-to-value vehicle financing business of Getin results in low recovery rates. Scope estimated a base case recovery rate for the portfolio of 32.7% from vintage data, down to 14.9% in a AAA stress scenario.

Revolving portfolio (negative). The characteristics and credit quality of the portfolio may migrate during the replenishment period of two years after the closing date. This risk is mitigated by the originator’s expertise and by adequate single-asset, portfolio and performance covenants in the structure.

Positive rating-change driver. Faster-than-expected portfolio amortisation may benefit the rating if credit enhancement builds up before credit losses crystallise. A better portfolio at the end of the revolving period and a robust Polish economy would also drive stronger transaction performance and could positively impact the rating.

Negative rating-change driver. A higher-than-expected default rate or lower-than-expected recovery upon asset default would negatively impact the ratings.

Quantitative analysis and key assumptions

Scope applied its large homogenous portfolio approximation approach (LHPA) when modelling the highly granular collateral pool. Key assumptions derived were then taken and applied to the cash flow analysis of the transaction over its amortisation period. Scope modelled the transaction with four distinct sub-segments, based on the make-up of the portfolio which contains loans to private individuals and SMEs for the purchase of new and used vehicles (Private/NEW, Private/USED, SME/NEW and SME/USED).

Scope calibrated a point-in-time default rate and recovery assumptions based on 2006-2015 vintage data for the four sub-segments. The vintage data reflects the performance of Getin’s auto loan book and captures the mild deterioration of asset performance following the global financial crisis, which, however, was not as severe in Poland as it was in other jurisdictions.

For the segments Private/NEW, Private/USED, SME/NEW and SME/USED Scope assumed point-in-time default rates of 2.2%, 10.0%, 7.0% and 11.0% and coefficients of variation of 85.0%, 60.0%, 35.0% and 40.0%. The respective segments’ base case recovery rates are 38.3%, 33.8%, 30.9% and 29.6%. On an aggregate portfolio basis, the point-in-time default rate is 6.8%, the coefficient of variation is 54.0% and the base case recovery rate is 32.7%. The average rating-conditional haircut for the portfolio in the AAA-rating scenario is 54.4%, which reflects the significant volatility found in Getin’s recovery vintage data. Scope’s assumptions account for the potential migration of the portfolio during the revolving period, i.e. a less seasoned portfolio with a longer risk horizon and reduced yield, but also with a higher share of the Private/NEW segment, as a result of the replenishment criteria.

A long-term adjustment of the default rate and coefficient of variation is not justified in Scope’s view, given the historically stable economic expansion in Poland.

Rating sensitivity

Scope tested the resilience of the rating against deviations of the main input parameters: the portfolio mean default rate and the portfolio recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the model-implied rating for the bond changes when the portfolio’s expected default rate is increased by 50% and the portfolio’s expected recovery rate is reduced by 50%, respectively:

• Senior Bond, rated AAA_SF: sensitivity to probability of default, four notches; sensitivity to recovery rates, one notch.

Methodology

The methodologies applied for this rating were the General Structured Finance Methodology, dated August 2016, and the Auto ABS Rating Methodology, dated August 2016. Scope also applied the principles contained in the Rating Methodology for Counterparty Risk in Structured Finance Transactions, dated August 2016. All documents are available on www.scoperatings.com.

Scope analysts are available to discuss all the details of the rating analysis and the risks to which this transaction is exposed.

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. Guillaume Jolivet, Committee Chair, is the analyst responsible for approving the rating.

Rating history
The rating concerns newly-issued financial instruments, which were evaluated for the first time by Scope Ratings AG. Scope had already performed a preliminary rating for the same rated instrument in accordance with Regulation (EC) No 1060/2009 on rating agencies, as amended by Regulations (EU) No 513/2011 and (EU) No 462/2013.
Instrument ISIN; Date; Rating action; Rating
PLGNBAT00014; 14.07.2017; new; (P) AAA_SF

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 issuer of the investment. The issuer has participated in the rating process.
As of 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 nor 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
Executable versions of the transaction-related contracts; management due diligence material and interview with the originator; and historical vintage data indicative of the originator’s auto loan book, all provided by the originator; and detailed portfolio stratifications and contractual amortisation profiles, legal opinions, tax opinions.
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 the ratings is ‘General Structured Finance Rating Methodology’, dated August 2016, ‘Auto ABS Rating Methodology’, dated August 2016, and the ‘Rating Methodology for Counterparty Risk in Structured Finance Transactions’, dated August 2016. All files are available 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.

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