Class A-1 (ISIN: XS1123386838), PLN¹ 435.4m: affirmed at AAA_SF

Class A-2 (ISIN: XS1313115161), PLN² 160.3m: affirmed at AAA_SF

Class B (ISIN: XS1313115328), PLN³ 383.5m: upgrade to A_SF, from BBB+_SF

Scope used monthly collateral reports provided by PKO Leasing S.A up to 21 December 2017, the quarterly note-payment reports up to 27 March 2018.

Rating rationale

The rating actions reflect increased credit enhancement for the rated notes coupled with solid asset performance since closing. Class A and Class B credit enhancement has increased to 52.79% and 20.87%, respectively. Delinquent assets classified between 90 and 120 days past due currently comprise 0.12% of the outstanding portfolio balance. Cumulative gross default accounts for 0.54% of the outstanding portfolio balance, with a 50% cumulative recovery rate, materially above Scope’s expectations at closing. The current weighted average margin of the portfolio is stable at 3.58%, resulting in 2.57% of excess spread.

The upgrade of the Class B is underpinned by the fast deleveraging of the transaction, with a remaining WAL of 2 years for the notes. Additionally, the transaction benefits from stable and favourable portfolio segment migration in comparison to the covenant limits for replenishment, which Scope considered at closing.

Counterparty risks in the transaction remain limited with exposure to Elavon Financial Services as account bank and PKO Leasing S.A as loan originator. The reserve fund can cover senior expenses and Class A and B interest over four payment periods at the current 3-month WIBOR rate of 1.72%, assuming servicer costs of 10 bps, as observed historically.

Scope does not observe material negative credit impact for the transaction following the sale of the initial originator Raiffeisen-Leasing Polska SA (RLPL) to PKO Leasing S.A. Scope closely monitors asset quality with regards to potential changes in loan origination and servicing standards

Key rating drivers

Increased credit enhancement (positive). The notes benefit from comfortable credit enhancement provided by subordination and the cash reserve. The level of credit enhancement has increased to 52.79% for the Class A, and 20.87% for class B.

Polish economy (positive). The Polish economy continues to display robust growth, which benefits the transaction. Scope expects the recovery in the eurozone to favour Poland’s exports, mainly to Germany, with additional support from the EU via foreign direct investment in Poland.

Fast amortisation (positive). The class A and B bear a relatively short risk exposure to counterparties and possible macroeconomic deterioration due to a short remaining WAL of respectively 0.8 years and 2 years.

Servicer commingling losses (positive). Servicer commingling losses are covered unconditionally by the available credit enhancement. The loss of collections from receivables on the two-month period when balances are largest would not impact the class A rating and would only result in a one-notch downgrade for the class B.

Strong liquidity coverage (positive). The structure provides strong liquidity protection via fully interconnected, separate priority of payments to ensure the timely payment of class A interest. The required RF balance is 2% of the outstanding balance of the class A and B notes plus the junior funding and can thus amortise to an absolute floor of 10 bps of the initial portfolio balance or PLN 1.5m.

No residual value risk (positive). All contracts amortise with constant annuities (i.e. French amortisation). The terminal payment is part of the ordinary payment schedule of the contract.

Unsecured recoveries (negative). The commitment of the originator to transfer proceeds from the sales of leased objects would generally not be enforceable after an insolvency event of the originator. We have analysed this transaction as a purely unsecured transaction.

Unhedged interest-reset risk (negative). The structure does not include a hedging agreement to cover the basis risk stemming from a potential reset of 3-month WIBOR. We have stressed the margin of the assets to accommodate temporary margin compression during possible scenarios of sharply rising interest rates along the life of the transaction.

Vintage data volatility (negative). The vintage data used for the analysis is very volatile. Scope also relied on internal probabilities of default provided by the originator when building the portfolio-modelling default-rate distribution.

Rating-change drivers

Positive. Faster-than-expected portfolio amortisation, due to high pre-payments resulting in credit enhancement build-up, may positively impact the ratings.

Negative. Worse-than-expected asset performance showing in a higher-than-expected default rate or lower-than-expected recovery upon asset default would negatively impact the ratings.

Quantitative assumptions and cash flow analysis

Scope performed a cash flow analysis of the transaction over the amortisation period, incorporating important structural mechanisms into the analysis. The agency used a static portfolio based on the pool as of the latest reporting (27 March 2018). Scope assumed that portfolio defaults followed an inverse Gaussian distribution to calculate the expected loss of the rated tranche. The analysis also provided the expected weighted average life of each tranche, as well as the asset and liability amortisation. Scope analysed the securitised portfolio as a single pool.

Scope expects a blended life mean lifetime default rate of 7.8% with a coefficient of variation of 43%, assuming an inverse Gaussian probability distribution of portfolio default rates. These assumptions are driven by the different historical performance of the four receivable segments in the portfolio, namely new cars (5.5% DR), used cars (7%), trucks and trailers (11%), and machinery and equipment (12.5%). A weighted average recovery of 30% was assumed by Scope. This rate does not include recovery proceeds from the liquidation of leased objects, which are at risk of being commingled with the insolvency estate of the originator upon its default. Additional parameters are considered, such as forward WIBOR rates and prepayment assumptions (High: 8%, Low: 0%).

Stress testing

Stress testing was performed by applying rating-adjusted recovery rate assumptions.

Rating sensitivity

The following shows the difference in outcome compared to the assigned rating when the portfolio’s expected default rate increases by 50%, or the portfolio’s expected recovery rate decreases by 50%, respectively:

• Class A: sensitivity to default rate assumptions, no change; sensitivity to recovery rates, no change;
   
• Class B: sensitivity to default rate assumptions, no change; sensitivity to recovery rates, two notches.

About the transaction

ROOF Poland Leasing 2014, DAC is a securitisation of auto and vehicle leasing receivables worth PLN 1,201m as of March 2018. The transaction closed on 15 December 2014 and was ramped up on 2 December 2015. The leasing contracts are granted to small- and medium-sized enterprises and self-employed individuals to finance the acquisition of vehicles and machinery in Poland. The transaction has a two-year revolving period, which ended in December 2017, and a final maturity on 2 October 2025. Scope continuously monitors all rated notes from ROOF Poland Leasing 2014, DAC.

Ratings and research are available free of charge at www.scoperatings.com.

1,2,3: On 30.01.2019 the currency was amended. In the initial publication of 09.07.2018 the currency in class A-1, A-2 and B was EUR.

Methodology
The methodology applicable for this final rating is the ‘SME ABS Rating Methodology’, the 'General Structured Finance Rating Methodology', and the ‘Methodology for Counterparty Risk in Structured Finance’. All files are available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to 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 definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies 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.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, the rated entities’ agents, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings GmbH has relied on a third-party asset due diligence/asset audit. The external due diligence/ asset audit / internal analysis has no impact on the credit rating.
Prior to the issuance of the rating action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating is issued by Scope Ratings GmbH.
Lead analyst Thomas Miller-Jones, Associate Director
Person responsible for approval of the rating: Guillaume Jolivet, Managing Director
The rating was first released by Scope on 1 December 2015.
The rating was last updated on 19 October 2017.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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