Scope affirms class A and B notes of Prosil Acquisition S.A. - Spanish NPL ABS
Scope Ratings GmbH (Scope) has taken the following rating actions:
Class A (ISIN XS1843432078), EUR 123.4m outstanding amount: affirmed at BBSF
Class B (ISIN XS1843431930), EUR 30.0m outstanding amount: affirmed at CCCSF
Class J (ISIN XS1843431856), EUR 15.0m outstanding amount: not rated
Class Z (ISIN XS1843431773), EUR 16.0m outstanding amount: not rated
The rating action incorporates the correction of an analytical error. Previously, the transaction was modelled considering an incorrect initial value for the cumulative net collections ratio (CCR) and thus also an incorrectly calculated CCR vector. These elements are now corrected, with no impact on the assigned ratings. Scope undertook a full analytical review, considering the investor and servicer reports with information up to April 2022.
Prosil Acquisition S.A. is a static cash securitisation of a Spanish non-performing loan (NPL) portfolio worth around EUR 494.7m by outstanding balance and around EUR 40m by third-party appraisal value of real-estate owned (REO) assets as at the closing date. The initial NPL pool consisted of senior secured loans (94%), junior secured loans (1%), as well as unsecured loans and secured residual exposures (5%). The loans were extended to individuals (66%) and small and medium-sized companies (34%) and were originated by Abanca. The ratings were first assigned on 30 July 2019. The legal maturity is in October 2039.
As of March 2022, gross collections totalled EUR 88.3m, representing 49.6% of the original business plan expectation of EUR 177.9m. Around 29% of the gross collections came from closed borrowers, specifically through real estate sales (46%), amicable strategies (45%) and legal procedure and ‘others’ (9%).
The class A notes’ notional has amortised by only 27.4% as of the latest interest payment date (April 2022). The conversion rate of gross collections is low, explained in part by actual expenses being higher than forecasted in the initial business plan. As a result, the class A notes’ outstanding balance relative to outstanding gross book value has increased to 43.6% from 34.4% at closing.
Interest on class B is subordinated to the payment of class A principal if the CCR falls below 90% of the servicers’ business plan target or the net-present-value profitability ratio falls below 90%. These ratios are curable, and once cured, all accrued and unpaid interest are distributed senior to class A principal payments. A class B interest subordination event occurred in April 2020 and class B interest is subordinated to the payment of class A principal, resulting in EUR 3.8m of deferred interest as of April 2022.
The rating action is driven by Scope’s updated modelling assumptions, which reflect current and potential macro-economic factors as well as the observed and expected performance of the transaction.
Scope also compared the transaction’s performance to its own recovery assumptions in the current macro-economic context. These assumptions relate to asset resolution timing and recovery estimates, developed through transaction-specific observations and benchmarking. Scope’s B case lifetime collections are around 4% lower compared to its assumption at closing.
Reported profitability on closed borrowers stands at 89.8%. Profitability has been slowly declining in the past 12 months.
In the most recent business plan, dated March 2022, lifetime gross collections were revised down (4.9%) from the level in the initial business plan, with a more backloaded timing on expected recoveries.
The ratings consider the issuer’s exposure to key counterparties.
Key rating drivers
Low discount on property sales (positive)1. The special servicer has sold 572 properties (EUR 40.5m by sale amount) in the open market since closing. The weighted average property sale amount is close to the market value of the related properties, implying around a 4% discount.
Granular and secured portfolio (positive)1. The outstanding portfolio is highly granular and mostly composed of secured exposures (99.9% of gross book value). The top 10 exposures represent around 8.5% of the total collateral value.
Liquidity protection (positive)1. A cash reserve equal to 4.5% of the class A provides liquidity protection to senior noteholders, covering senior expenses and interest on the class A notes. Amounts released from the cash reserve are used to amortise the class A notes.
Interest rate cap (positive)1. The transaction benefits from an interest rate cap referencing three-month Euribor and with a flat strike at 0.50%, which mitigates interest rate risk arising from the floating rates on the notes.
Low cumulative collections (negative)1. Observed cumulative net collections are 46.3% of the original business plan expectation as of April 2022.
High realised costs (negative)1. The total expense reported in the servicing report is around 29.3% of gross collections. This is higher than the lifetime cost of around 21.4% forecasted in the updated servicer business plan as of March 2022.
Positive. An improvement in the collections pace and lower realised costs could positively impact the rating.
Negative. A decline in profitability and a further delay in collections may negatively impact the rating.
Quantitative analysis and assumptions
Scope analysed cash flows reflecting the transaction’s structural features to calculate each tranche’s expected loss and weighted average life. Scope analysed the assets to produce a rating-conditional cash flow projection of gross recoveries for the portfolio of defaulted loans.
Scope has updated its modelling assumptions to reflect the current performance of the transaction and the current macro-economic context.
For the class A analysis, Scope assumed a lifetime gross recovery rate of 44.2% over a weighted average life of 5.4 years. By portfolio segment, Scope assumed a gross recovery rate of 47.0% and 1.7% for the secured and unsecured portfolios, respectively.
For the class B analysis, Scope assumed a lifetime gross recovery rate of 49.3% over a weighted average life of 5.2 years. By portfolio segment, Scope assumed a gross recovery rate of 52.4% and 1.9% for the secured and unsecured segments, respectively.
Scope tested the resilience of the ratings to deviations in expected recovery rates and recovery timing. 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 results would change for the rated notes in the event of:
a 10% haircut to recoveries: one-notch decrease for class A and two-notch decrease for class B.
- an increased recovery lag by one year: zero notches for class A and one-notch decrease for class B.
Rating driver references
1. Transaction documents and reporting (confidential)
Stress testing was performed by applying Credit-Rating-adjusted recovery rate assumptions.
Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ Cash Flow SF EL Model Version 1.1 incorporating the relevant asset assumption, 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.
The methodologies used for these Credit Ratings, (Non-Performing Loan ABS Rating Methodology, 6 August 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021; General Structured Finance Rating Methodology, 17 December 2021), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Scope Cash Flow SF EL Model Version 1.1), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/ratings-and-research/structured-finance/methodologies.
Solicitation, key sources and quality of information
The Rated Entity and its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings has received a third-party asset due diligence assessment/asset audit at closing. The external due diligence assessment/asset audit was considered when preparing the Credit Ratings and it has no impact on the Credit Ratings.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Shashank Thakur, Analyst
Person responsible for approval of the Credit Ratings: David Bergman, Managing Director
The final Credit Ratings were first released by Scope Ratings on 30 July 2019. The Credit Rating were last updated on 29 July 2021.
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.
Conditions of use / exclusion of liability
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