Rating action

• Class A-1 (XS1123386838): Withdrawn
   
• Class A-2 (XS1313115161): Withdrawn
   
• Class B (XS1313115328), PLN 349.6m: upgrade to AAA_SF, from A_SF

The rating actions incorporate information available from historical transaction reports through 27 March 2019.

Transaction overview

ROOF Poland Leasing 2014, DAC is a securitisation of vehicle and equipment lease receivables granted to small- and medium-sized Polish enterprises and individuals. The portfolio has amortised to PLN 572.7m as of 27 March 2019, with the two-year replenishment period concluding in December 2017. The transaction closed on 15 December 2014 and was ramped up on 2 December 2015. The transaction’s priority of payments are sequential and the legal final maturity is 2 October 2025. Scope continuously monitors the outstanding rated notes of ROOF Poland Leasing 2014, DAC.

Rating rationale

The rating actions are primarily driven by structural deleveraging and transaction performance that has been better than Scope’s initial expectations. The credit enhancement available to protect the class B notes has increased to 40.8% from 17.0% as of the ramp up start date. Class B’s remaining expected weighted average life is short at 1.0 year.

The class A-1 and A-2 notes have been fully repaid.

The rating also reflects the legal and financial structure of the transaction; counterparty exposure to PKO Leasing S.A. as servicer, and Elavon Financial Services Ltd (Elavon) as account bank and paying agent. Counterparty risk to Elavon as account bank and paying agent is mitigated by a replacement mechanism upon the loss of a minimum rating level.

Key rating drivers

Increased credit enhancement (positive). The level of credit enhancement for the class B notes has increased to 40.8% for class B due to fast structural deleveraging.

Obligor performance (positive). The Gross Cumulative Default Ratio of 0.9% and observed 90-120-day delinquencies of 0.2% are better than Scope’s initial expectations.

Fast amortisation (positive). The class B bears a relatively short risk exposure to counterparties and possible macroeconomic deterioration due to a short expected remaining weighted average life of 1.0 year.

Moderate excess spread (positive). Excess spread is approximately 1.8%, assuming senior costs of 1.0%, which can be used to cover periodic losses and liquidity shortfalls.

Polish economy (positive). The Polish economy continues to display solid growth, which benefits the transaction. Scope expects domestic demand will continue to drive growth in Poland, along with additional support from EU structural funds and low real interest rates.

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.

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.

Rating-change drivers

Negative. Higher-than-expected default rates and/or lower-than-expected recoveries upon asset defaults may negatively impact the ratings. Deteriorating market conditions beyond Scope’s economic outlook may also negatively affect the ratings.

Quantitative analysis and assumptions

Scope determined the expected loss and weighted average life of the rated notes considering the portfolio characteristics and the transaction’s main structural features, such as the notes’ priorities of payments, note size, the notes’ respective coupon, senior costs and servicing fees.

Scope applied its large homogenous portfolio approximation approach when analysing the collateral pool and projecting cash flows over the expected amortisation period. The cash flow analysis considers the probability distribution of the portfolio’s default rate, using an inverse Gaussian distribution. Scope expects a blended lifetime mean default rate of 8.1% and coefficient of variation of 41.4%, taking into consideration the latest portfolio segmentation.

Defaulted exposures are provisioned for once they reach the 120 days-past-due mark, or when they are declared to be in subjective default, in accordance with the transaction structure. Scope did not assume a cure rate. An 18.0% rating-conditional recovery rate was assumed for the class B notes, as leased assets would generally not be enforceable after an insolvency event of the originator – only recoveries from the lessees were considered.

Scope has stressed the margin of the assets by 0.5% to accommodate temporary margin compression during possible scenarios of sharply rising interest rates along the life of the transaction. Scope analysed the transaction under high (8.0%) and low (0.0%) prepayment scenarios.

Sensitivity analysis

Scope tested the resilience of the assigned ratings 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 assigned ratings to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the results for each rated instrument change 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 B: sensitivity to default rate assumption, 0 notches; sensitivity to recovery rates, 0 notches.

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

Cash flow analysis
Scope performed a cash flow analysis of the transaction with the use of Scope Cash Flow SF EL Model Version 1*, incorporating default and recovery rate assumptions over the portfolio’s amortisation period, taking into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

*Editor's Note: The cash flow model name was changed on 22 July 2019 to correct a typographical error.

Methodology
The methodologies used for these ratings (‘General Structured Finance Rating Methodology’, ‘Methodology for Counterparty Risk in Structured Finance’, ‘Consumer and Auto ABS Rating Methodology’) are available on www.scoperatings.com.
Historical default rates of the entities rated by 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 definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.

Solicitation, key sources and quality of information
The rated instruments' issuer 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 instruments 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 has received a third-party asset due diligence/asset audit provided at closing of the transaction upon initial assignment of the ratings. The external due diligence assessment/asset audit was considered when preparing the rating and it has no impact on the credit rating.
Prior to the issuance of the rating action, the issuer and/or its agents were given the opportunity to review the rating and the principal grounds on which the credit rating is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst: Kreschma Nazary, Associate Director
Person responsible for approval of the rating: David Bergman, Executive Director
The final ratings were first released by Scope on 02 December 2015.

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
© 2019 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

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