Asset Portfolio Rating Action:

The asset portfolio rating is as follows:

Asset portfolio: 225.3mn par value: A+_AP under review for a developing outcome

Scope’s review considered the latest available holdings list as of 30 April 2021 and public information.

Portfolio description

The portfolio held by GAM Greensill Supply Chain Finance Fund SCSP (GAM Greensill SCF Fund) comprises notes issued by three pass-through bankruptcy-remote SPVs. The notes are backed by irrevocable payment obligations from investment-grade obligors by way of an obligor’s approval of an invoice received from a given supplier – resulting in a supply chain financing receivable. Insurance protects against the credit risk of an investment-grade obligor’s potential non-payment. The insurance company must have a minimum credit quality commensurate with an A rating.

Greensill Bank AG (Greensill Bank) originated and managed the supply chain finance programmes under which the obligations from the obligors were created for the GAM Greensill SCF Fund. Greensill Bank, along with Greensill Capital (UK) Ltd, arranged the insurance policies covering the portfolio assets. GAM International Management Ltd (GAM) is the named beneficiary of the policies.

On 2 March 2021 GAM announced it was closing the GAM Greensill SCF Fund due to market developments in supply chain finance. The portfolio manager, GAM publicly expressed its absence of concerns about asset valuations in the portfolio and that all assets were fully insured against default by third-party insurers. The fund is now in liquidation and the expected final maturity is in January 2022.

Rating rationale

Scope’s downgrade reflects the increased uncertainty that the insurance policies covering the portfolio’s assets are valid. The increased uncertainty mainly stems from two elements: i) Tokio Marine Holdings, Inc. (Tokio Marine) publicly stating that it is conducting an internal investigation regarding the validity of all Greensill insurance policies, and ii) the 4 June 2021 revocation of the auditor’s report for Greensill Bank’s 2019 financial and managerial reports. Other insurance companies covering part of the remaining portfolio may conduct similar internal investigations.

It has been communicated to Scope that the insurance policies in the portfolio are currently valid; however, the increased scrutiny of the policies due to Tokio Marine’s internal investigation signals potential doubts of the policies’ bona fides.

The revocation of the 2019 financial and managerial audit reports for Greensill Bank may be supportive of a case to invalidate the existing insurance policies if the information in the audit reports is found to be fraudulent and was also used by the insurers during the underwriting phase. The audit report revocation was announced on 4 June 2021 in the Bundesanzeiger (the Federal Gazette for Germany).

The portfolio rating is under review for a developing outcome. The review will mainly focus on i) the validity of the existing insurance policies covering the portfolio’s assets, ii) the credit quality of the underlying obligors; and (iii) any changes to the asset manager’s liquidation strategy.

Key rating drivers

CREDIT POSITIVE (+)

Strong portfolio¹: The current portfolio complies with the investment criteria and remains investment grade. The weighted average insurer rating is commensurate with an A+.

Obligors with global reach: The obligors of the underlying supply chain financing receivables generally operate on a global scale, which reduces the adverse impact from local economic shocks.

Obligor incentives: Even weak obligors have a strong incentive to prioritise the supply chain receivables, as a break-down of the supply chain would have a negative impact on its business model and reduce the possibility for a restructuring.

Liquidation strategy¹: The non-cash portfolio continues to pay down in a timely manner. Scope has been informed that no forced asset sales have occurred since the closing of the GAM Greensill SCF Fund.

CREDIT NEGATIVE (-)

Insurance policy uncertainty^{2, 3, 4}: Recent developments have increased the uncertainty that insurance cover is valid, which is a critical element of the asset portfolio rating.

Increasing concentration risk¹: Obligor concentration is increasing as the portfolio naturally runs-off, with one obligor currently accounting for 68% of the total outstanding portfolio balance. Additionally, one insurer constitutes 91% of the total non-cash portfolio.

Rating-change drivers

Following an updated analysis of the developments the review status will be resolved with the ratings being upgraded, downgraded, or confirmed.

Rating driver references
1. Transaction documents and reporting (Confidential)
2. Revocation of Greensill Bank AG’s 2019 financial and managerial audit
3. Tokio Marine’s investigation of Greensill insurance policies
4. Tokio Marine’s concerns about validity of Greensill insurance policies  

Stress testing
No stress testing was performed.

Cash flow analysis
No cash flow analysis was performed.

Methodology
The methodology used for this asset portfolio rating is the Asset Portfolio Rating Methodology (23 March 2021) and is available at https://www.scoperatings.com/#!methodology/list. The asset portfolio rating is not a credit rating under the CRA regulation, but an ancillary service provided by Scope Ratings.
Information on the meaning of ancillary services, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale.
Scope Ratings considers the quality of information available to Scope Ratings on the rated portfolio to be satisfactory. The information and data supporting Scope Ratings’ asset portfolio rating 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.

Regulatory disclosures
This asset portfolio rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thomas Miller-Jones, Associate Director
Person responsible for approval of the asset portfolio rating: David Bergman, Managing Director
The asset portfolio rating was first released by Scope Ratings on 24 April 2019. The asset portfolio rating was last updated on 5 March 2021.

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services 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.