Rating action

The transaction comprises the following instruments:

Class A-1 (ISIN XS205218220), PLN 1,290.0m: AAA_SF

Class A-2 (ISIN N/A), PLN 545.0m: AAA_SF

Class B (ISIN XS2052182545), PLN 640.0m: BB-_SF

Scope’s review was based on investor reports through the 26 August 2020 reporting date.

Transaction overview

The transaction consists of the securitisation of a PLN 2.5bn portfolio of fully amortising lease receivables with no residual value risk, originated and serviced by PKO Leasing Spółka Akcyjna (PKOL). The transaction closed on 26 September 2019.

The review took place on 18 September 2020 and was based on available investor reports through 26 August 2020, covering four interest payment dates since closing. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found at www.scoperatings.com.

Key rating factors

Scope Ratings has reviewed the performance of Polish Lease Prime 1 DAC, and no rating action is warranted. (Current ratings on the transaction are available here: A-1, A-2 and B) Early-amortisation triggers in the transaction are in compliance and replenishment covenants that protect against portfolio credit deterioration have not been breached since closing.

In March 2020 PKOL started to grant COVID related payment holidays to the lessees in the portfolio. By law, Polish leasing companies are not obliged to offer payment holidays to their customers. The voluntary decision was in line with PKOL’s parent Powszechna Kasa Oszczędności Bank Polski S.A. (PKO BP) and the recommendation of the Polish Bank Association. The payment holidays constitute non-permitted amendments and violated the respective provisions of the transaction documents. The affected provisions were waived by the investors in April 2020 and the replenishment mechanism was stopped. From this date, collections from the underlying receivables accumulated in the SPV’s account, creating economic inefficiencies for PKOL in the form of negative carry. In August 2020, the transaction parties negotiated an amendment of the transaction documents to unblock the purchases of additional receivables by the SPV and to resume the replenishment mechanism.

A new portfolio covenant which caps the portfolio share of COVID related payment holidays at 18 % was added. In addition, this covenant only applies to receivables which are granted payment holidays latest on 30 September 2020. Starting from October 2020 any new payment holidays granted to receivables in the portfolio will be treated as non-permitted amendments. Therefore, these receivables will be subject to substitution by the originator (in accordance with a set of prescribed criteria aimed at avoiding implicit support to the transaction) and the share of remaining receivables with payment holidays will gradually decrease.

Since August 2020, the transaction continues replenishing and adheres to replenishment covenants. The replenishment period ends in August 2021, unless an early amortisation trigger fails. Scope’s analysis is based on quarterly reporting provided by PKOL.

Portfolio segmentation and performance have been relatively stable up to the last payment date. The 0.36% gross default ratio and the 0.53% three-month rolling average late delinquency rate are well below the early-amortisation trigger levels of 1.75% and 1.5%, respectively. Credit enhancement for the senior notes is unchanged at 28.9%. Transaction counterparties continue to support the ratings: i) PKOL as servicer, ii) PKO Bank Polski S.A. as back-up servicer facilitator and iii) Elavon Financial Services DAC as account bank and paying agent. Structural protections include regular cash sweeps, back-up arrangements and account bank replacement trigger.

Key rating drivers

CREDIT-POSITIVE (+)

Credit enhancement. Class A credit enhancement provided by subordination and the cash reserve is unchanged at 28.9%.

Liquidity coverage. The cash reserves coverage of senior fees and class A and class B interest increased due to substantial decrease of Wibor rates, the reference rate of the notes (to 4 IPDs from 2 IPDs)

Portfolio covenants and performance metrics. No unfavourable portfolio migration materialised during the first year of replenishment. Current performance metrics are well below the transaction triggers for early amortisation.

CREDIT-NEGATIVE (-)

Revolving portfolio. The characteristics and credit quality of the portfolio may migrate during the remaining one-year replenishment period. This risk is mitigated by the originator’s expertise and by the adequate single-asset, portfolio and performance covenants in the structure.

Receivables with payment holidays. Receivables with payment holidays do not pay principal. However, borrowers are still obliged to pay interest and the maximum portfolio share of receivables under payment holidays is capped at 18%. In addition, starting from October 2020, no new receivables with granted payment holidays will enter the pool resulting in a gradually decreasing portfolio share of affected receivables.

Macro-economic uncertainty due to COVID-19: Following the onset of COVID-19, Scope revised Poland’s GDP growth forecast down to -4.2% in 2020, the smallest decline in 2020 output among the Central and Eastern European (CEE) members of the EU. The resilience mainly derives from the unprecedented EU-wide and national fiscal and monetary stimulus and the country’s large and diversified economic base with low exposure to the pandemic’s disruption of global supply chains.

Rating-change drivers

POSITIVE (+)

Faster-than-expected portfolio amortisation may benefit the class B rating if credit enhancement builds up before credit losses crystallise.

Better-than-expected portfolio quality at the end of the revolving period combined with a recovering Polish economy would drive stronger deal performance and could positively impact the class B rating.

NEGATIVE (-)

Worse-than-expected asset performance driven by a severe macro-economic dislocation due to COVID-19 may negatively impact the ratings.

The methodologies applicable for the reviewed rating (Scope’s ‘Consumer and Auto ABS Rating Methodology’ published on 4 March 2020 and its ‘Methodology for Counterparty Risk in Structured Finance’ published on 8 July 2020. All documents are available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.

Lead analyst: Martin Hartmann, Associate Director

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