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 methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Hestia Financing S.à r.l. on 2 December 2022. The credit rating remains as follows:

Class A notes (XS2409267254), EUR 386.6m outstanding: BBB_SF

Class Z notes (XS2409266876), EUR 1,721.7m outstanding: not rated

Hestia Financing S.à r.l. is a Cypriot static cash securitisation of a portfolio of non-performing loans (NPLs) and real estate owned (REO) properties with a total adjusted pool value of EUR 2.06bn at closing (total adjusted exposure of non-performing loans and appraised value of REO properties). The portfolio was originated by Bank of Cyprus (originator) and is owned by Themis Portfolio Management Holdings Limited, a Cypriot Credit Acquiring Company (CyCAC), which was acquired by Oxalis Holdings S.à r.l (sponsor). The portfolio is serviced by Themis Portfolio Management Limited (Themis).

The review was conducted based on available payment and servicer reports reflecting performance up to the October 2022 interest payment date.

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

The portfolio has generated EUR 149m gross collections of which EUR 122m are cash collections and EUR 27m are REO sales. Current gross collections are equal to 442% of Scope’s baseline expectations at closing for the fourth IPD. The servicer has also repossessed EUR 134m worth of real estate since July 2021, increasing the open market value of currently managed REO to EUR 196m.

Expenses including all CyCAC and issuer expenses, and servicing fees amount to 30% of available cash since issuance, mainly driven by the large lump sum payments to the servicer in the first IPD. 19% of the class A notes amortised in four interest payment dates (IPDs). Cash sweep event has been triggered during the third IPD. Current outstanding balance of the class A notes are 11% below the target note amount determined for the cash sweep event in respect of the fourth IPD.

Amortisation of the senior notes (positive)

The class A notes have amortised 19% in four IPDs. Pace of amortisation is significantly faster than Scope’s assumptions for class A at closing.

Activated cash sweep event (positive)

Cash sweep event fastens the amortisation of the class A notes because all available cash will be used to redeem the notes after the payment of expenses and the note coupon. Scope expects the notes to benefit from the event as the collections and expenses stabilize over the next year.

Interest rate risk underhedged (negative)

Outstanding balance of the class A notes is above the notional amount defined in the interest rate cap agreement for the fourth interest payment date (IPD). Hedging structure against Euribor 3m base rate only partially limits the exposure to interest rate risk for the class A notes. Scope expects increasing interest rates to become more relevant if the gap between interest rate cap notional and class A notes’ outstanding principal further widens.

Limited number of fully resolved positions (negative)

Small number of fully resolved borrowers limits the accuracy of Scope’s profitability calculation, i.e., Scope’s expectations versus actual collections on a borrower-level. Scope only considers forty-four borrowers whose files are closed, and collateral is disposed as fully resolved. REO sales discounts are better than Scope’s expectations, thus we expect more visibility to the borrower-level performance as the sizable real estate portfolio continue to be disposed in the market.

High observed expenses (negative)

Total CyCAC and issuer expenses amount to 30% of available cash since issuance. This is mostly attributable to high expenses in the first IPD resulting from a large lump-sum payment to the servicer. However, in the last three quarters, expenses registered a lower amount (23% of cash collections), so we expect them to stabilize at a lower level.

The methodologies applicable for the reviewed rating (General Structured Finance Rating Methodology, 17 December 2021; Non-Performing Loan ABS Methodology, 5 August 2022; Counterparty Risk Methodology, 14 July 2022) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Mirac Ugur, Specialist

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