Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodologies, including key rating assumptions and models. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Retiro Mortgage Securities DAC on 21st February 2022. Credit ratings remain as follows:

Class A1 (ISIN: XS2306848479), EUR 260,000,000: rated BBB+_SF

Class A2 (ISIN: XS2306849287), EUR 77,000,000: rated BBB-_SF

Class B (ISIN: XS2306849956), EUR 34,000,000: rated B-_SF

Class C (ISIN: XS2306850459), EUR 15,000,000: rated CCC_SF

Class D1 (ISIN: XS2306856571), EUR 10,000,000: not rated

Class D2 (ISIN: XS2306857207), EUR 10,000,000: not rated

Class D3 (ISIN: XS2306858197), EUR10,000,000: not rated

Class E (ISIN: N/A), EUR 54,000,000: not rated

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

As of 30 September 2021, aggregate gross collections were EUR 85.5m, which represents around 87% of the original business plan expectations of EUR 98.6m. In terms of net collections (gross collections reduced by the amount of recovery expenses and servicing fees), realised aggregate collections amount to EUR 46.43m, which represents 90% of the servicer’s original net expectations.

Based on Scope’s analysis, gross profitability on resolved positions and sold properties is around 161% relative to Scope’s class A1 analysis at closing, and 115% relative to Scope’s base case scenario. However, cumulative gross collections through September 2021 are 33% below expected cumulative gross collections under Scope’s base case scenario.

As per last investor report dated October 2021, gross collections had fallen below the minimum cash flow threshold (defined as 80% of expected gross cash flows from respective sub-portfolio in the business plan), for the Tambo sub-portfolio. Therefore, loan and REO servicing fees component for the sub-portfolio were subordinated to all rated notes. Gross collections were above the minimum cash flow threshold for all other sub-portfolios.

All transaction counterparties continue to support the ratings.

Credit-positive (+)

Profitability on sold properties. REO properties have generally been sold in line with underwritten value at closing (realised sale prices were 0.3% below property value at closing). Realised sale prices are therefore around 14% above Scope’s stressed market value for these properties under the base case scenario.

Credit-negative (-)

Timing of recoveries. As of 30 September 2021, gross collections are 13% below business plan and 33% below Scope’s base case scenario at closing. Persistent delay in collections would lead to delayed amortisation of class A2, B and C notes, as well as accrual of additional note payments on all tranches of rated notes (starting April 2026), impacting class B and C notes in particular.

Low amortisation rate for class A1 notes. Due to material and frontloaded expenses and costs as well as longer than expected timing of recoveries, amortisation of class A1 notes is slower than Scope’s base case scenario. As of the payment date in October 2021, less than 55% of cumulative gross collections have been used to amortise the senior-most tranche.

The methodologies applicable for the reviewed ratings (General Structured Finance Rating Methodology, 17 December 2021; Non-Performing Loan ABS Methodology, 6 August 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021) 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: Chirag Shekhar, Analyst

Potential conflicts*
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings. One of the General Managers of Scope Ratings, who joined the organisation on 1 December 2021, has a significant relationship with an affiliate of Deutsche Bank AG, a related third party to this transaction.

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*Editor's note: The 'Potential Conflicts' section was added on 20 April 2022.