Rating action

Scope Ratings GmbH (Scope) has taken the following rating actions on the instruments issued by FT RMBS Prado VII:

• Class A (ISIN ES0305508006), EUR 250,616,958 floating rate notes: affirmed at AAA_SF
   
• Class B (ISIN ES0305508014), EUR 38,600,000 floating rate notes: upgraded to AA+_SF from A_SF under review for development outcome
   
• Class C (ISIN ES0305508022), EUR 33,500,000: not rated

Transaction overview

The transaction is a static cash securitisation of a portfolio of first-lien mortgages on Spanish, owner occupied, residential properties. The loans have been originated by UCI and extended to individual borrowers that are resident in Spain. At closing, the weighted average Loan-to-Value ratio stood at 62%.

The underlying portfolio currently yields 4% annually and has an estimated remaining weighted average life of 12.1 years. Credit enhancement on the class A and B notes stands at 24.3% and 12.4%, respectively.

As of the date of the monitoring, neither the turbo amortisation event nor the Class B interest deferral event has been triggered.

Rating rationale

The review addressed i) the introduction of Scope’s RMBS Rating Methodology; ii) the collateral’s observed performance up to September 2024 payment date; iii) Scope’s forward-looking assumptions, which incorporate expected macroeconomic conditions over the transaction’s remaining life; iv) updates to the transaction’s liability structure, liquidity and interest rate hedging; and v) the issuer’s exposure to key transaction counterparties.

The upgrade of the mezzanine notes is mainly attributable to the implementation of the new methodology, which introduced a stochastic recovery rate distribution and a reduction of Scope’s senior cost assumption. Scope also considered the strong portfolio performance.

The Class A rating reflects the CFM base case results. Counterparty risk is credit-neutral.

Key rating drivers remain broadly aligned with those disclosed in Scope’s last rating action release dated 8 August 2024.

Beyond the key rating drivers, the main analytical considerations addressed during this review are:

• Good collateral performance¹. Overall, the portfolio is performing ahead of Scope’s expectations at closing. The cumulative default rate is 0.12% and the 90 days-past-due dynamic delinquency rate is 0.20%.
   
• Notes amortisation¹. Class A and B notes subordination have increased by 8.3% and 3.9% versus closing, respectively.

The key CFM assumptions underlying the above key rating drivers and analytical considerations are:

• Portfolio lifetime default rate following an inverse gaussian distribution.
   
• Stochastic recovery rates.

The key data sources used to derive the key CFM assumptions are:

• Transaction reporting: investor reporting as of September 2024 payment date.

Rating-Change Drivers

A change to the transaction’s Key CFM Assumptions based on observed performance or new data sources, significant changes to the transaction’s collateral and structural features, and a change in Scope’s credit views regarding the transition’s Key Rating Drivers could impact the ratings.

The ‘Sensitivity analysis’ section below provides an indication of the impact of variations in Key CFM Parameters on the CFM quantitative results.

Sensitivity analysis

Scope tested the resilience of the credit ratings against deviations in Key CFM Parameters. All else equal, the following analysis has the sole purpose of illustrating the sensitivity of the credit ratings to such parameters and is not indicative of expected or likely scenarios.

Class A:

• 50% increase / decrease of mean lifetime default rate: zero notches / zero notches
   
• 10 p.p. decrease/ increase of recovery rates: zero notches / zero notches

Class B:

• 50% increase / decrease of mean lifetime default rate: minus one notch / plus one notch
   
• 10 p.p. decrease/ increase of recovery rates: zero notches / plus one notch

Quantitative analysis

The key CFM parameters include but are not limited to:

• Default rate distribution parameters: A cumulative mean default rate assumption of 6.0% and a Distressed Default Rate assumption of 28.3%.
   
• Stochastic recovery rates: Beta distribution with a mean equal to 75% and distressed recovery rate equal to 45%.
   
• Base case constant prepayment rate: 5%
   
• Senior fees and expenses: 0.3%

CFM assumptions factor in the historical performance of assets of similar nature to those of the securitised portfolio, (e.g. based on peer transaction benchmarks), and may as well consider qualitative judgements based on a variety of factors, such as a) the originator´s credit policies, b) Scope´s macro-economic expectations, and c) the credit committee´s asset class outlook over the transaction´s remaining life.

Rating driver references
1. Investor reports

Stress testing
Stress testing was considered in the quantitative analysis by considering scenarios that stress factors, like defaults and Credit-Rating-adjusted recoveries, contributing to sensitivity of Credit Ratings and consider the likelihood of severe collateral losses or impaired cash flows. The impact on the rated instruments is weighted by the assumptions of the likelihood of the events in such scenarios occurring.

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ Cash Flow Model Version 2.0 incorporating relevant asset assumptions and taking into account the transaction’s main structural features, such as the notes’ priorities of payments, note size, note coupons, hedging, senior costs, liquidity as well as fixed and collections-based servicing fees.

Methodology
The methodologies used for these Credit Ratings, (General Structured Finance Rating Methodology, 6 March 2024; Counterparty Risk Methodology, 10 July 2024; Residential Mortgage-Backed Securities Rating Methodology, 17 July 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Cash Flow Model Version 2.0), 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://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://scoperatings.com/governance-and-policies/rating-governance/methodologies.

Solicitation, key sources and quality of information
The Rated Entity and/or 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 these 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. 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.

Regulatory disclosures
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: Stefano Bracchi, Specialist
Person responsible for approval of the Credit Ratings: Paula Lichtensztein, Senior Representative
The final Class A Credit Rating was first released by Scope Ratings on 12 November 2020. The Credit Rating was last updated on 19 June 2024.
The final Class B Credit Rating was first released by Scope Ratings on 12 November 2020. The Credit Rating was last updated on 8 August 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis 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.