DBRS Ratings Limited (DBRS Morningstar) confirmed its BBB (low) (sf) and CCC (sf) ratings of the Class A and Class B notes issued by Hefesto, STC, S.A.
The notes were backed by a EUR 482 million portfolio by gross book value (GBV) consisting of secured and unsecured non-performing loans (NPLs) originated by Banco Santander Totta, S.A. (BST). The secured loans disbursed to individuals are serviced by Whitestar Asset Solutions S.A. (Whitestar), the secured loans disbursed to corporates are serviced by HG PT, Unipessoal, Lda (Hipoges) and the unsecured loans are serviced by Proteus Asset Management, Unipessoal, Lda. (Altamira) (together, the Special Servicers).
At cut-off, approximately 51.4% of the pool by GBV was secured by commercial and residential loans. The secured loans included in the portfolio are backed by properties distributed across Portugal, with concentrations in the judicial districts of Lisbon, Porto and Setubal. The majority of loans in the portfolio defaulted between 2013 and 2017 and are in various stages of the resolution process.
In its analysis, DBRS Morningstar assumed that all loans are worked out through an auction process, which generally has the longest resolution timeline.
According to the most recent semi-annual payment report provided by Citibank, N.A., London-Branch (the Principal Paying Agent), the actual cumulative collections totalled EUR 8.7 million for the first year after closing. The expected business plan (BP) provided by the Special Servicer assumed cumulative gross disposition proceeds (GDP) of EUR 4.7 million during the relevant collection period, which is 85% lower than the amount collected so far. Therefore, the transaction is overperforming by an amount of approximately EUR 4.0 million as compared with the servicer’s initial BP.
At issuance, DBRS Morningstar estimated a GDP for the same one-year period of EUR 1.1 million in the BBB (low) (sf) stressed scenario, which is EUR 7.6 million lower as compared with the actual amount of collections. DBRS Morningstar will closely monitor whether the current outperformance compared with the initial business plan and its expectations is sustainable.
The coupon on the Class B notes, which represent the mezzanine debt, may be repaid prior to principal of the Class A notes unless certain performance-related triggers are breached. As per the latest payment report from May 2019, no subordination events have occurred.
The ratings are based on DBRS Morningstar’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the Special Servicers, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with Banco Santander, S.A. and the transaction’s legal and structural features.
Both the DBRS Morningstar timing and value stresses are based on the historical repossessions data of the Special Servicers. DBRS Morningstar’s BBB (low) (sf) and CCC (sf) ratings assumed haircuts of 28.0% and 0.9%, respectively, to the Special Servicers’ initial BP for the portfolio.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include the Special Servicers and the Principal Paying Agent.
DBRS Morningstar did not rely upon third-party due diligence to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings were of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
This is the first rating action since the Initial Rating Date.
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies are available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the rating (the Base Case):
-- Recovery Rates Used: Cumulative Base Case Recovery Amount of EUR 110 million at the BBB (low) (sf) stress level, a 5.0% and 10.0% decrease of the Cumulative Base Case Recovery Rate.
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5.0%, ceteris paribus, would lead to a downgrade of the Class A notes to BB (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10.0%, ceteris paribus, would lead to a downgrade of the Class A notes to CCC (sf).
-- Recovery Rates Used: Cumulative Base Case Recovery Amount of EUR 156 million at the CCC (sf) stress level, a 5.0% and 10.0% decrease of the Cumulative Base Case Recovery Rate.
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to a downgrade of the Class B notes to below CCC (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a downgrade of the Class B notes to below CCC (sf).
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 October 2019
DBRS Ratings Limited
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Registered in England and Wales: No. 7139960
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating European Non-Performing Loans Securitisations
-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- European CMBS Rating and Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.