Fitch Assigns Home Loan Invest 2016 Final Rating
OREANDA-NEWS. Fitch Ratings has assigned Loan Invest N.V./S.A. Compartment Home Loan Invest 2016's notes a final rating, as follows:
EUR3,270m Class A: 'AAAsf'; Outlook Stable
EUR366m Subordinated Loan: NR
The notes are backed by a pool of Belgian prime residential loans issued to individual borrowers in Belgium and originated by KBC Bank (KBC; A-/Positive/F1). Credit enhancement for the class A notes totals 10.2% of the securitised pool and is provided by the subordinated loan as well as the reserve fund.
KEY RATING DRIVERS
Prime Residential Loans
Fitch has set a 'Bsf' weighted average frequency foreclosure (WAFF) for the pool of 2.8%. This reflects the strong historical performance of KBC's mortgage loan portfolio. The previous Loan Invest transactions also demonstrate healthy performance.
The WA original mortgage-to-value (OMTV) ratio of the Loan Invest 2016 portfolio is 78.2%, slightly lower than the OMTV of previous Loan Invest transactions and of the KBC mortgage cover pool. The portfolio comprises fixed-for-life rate loans and fixed with reset interest rate loans.
Geographical Exposure
In line with its historical presence in Flanders, 96% of the loans are backed by a property located in Flanders, compared to 1% in the Brussels region and 3% in Wallonia.
Concentrated Counterparty Exposure
The transaction relies strongly on the creditworthiness of KBC, which fulfils a number of roles (eg account bank, servicer and interest rate swap counterparty). Several structural features are in place to mitigate, in particular, commingling and liquidity risks in the transaction.
Counterparty Risk
As part of its analysis of the transaction, Fitch used the Exposure Draft: Counterparty criteria for Structured Finance and Covered Bond, published in April 2016. Rating sensitivity to this criteria is detailed below.
RATING SENSITIVITIES
Expected impact upon the note rating of increased defaults (class A):
Original rating: 'AAAsf'
Increase default base case by 10%: 'AAAsf'
Increase default base case by 25%: 'AAAsf'
Increase default base case by 50%: 'AA+sf'
Expected impact upon the note rating of decreased recoveries (class A):
Original rating: 'AAAsf'
Reduce recovery base case by 10%: 'AAAsf'
Reduce recovery base case by 25%: 'AAAsf'
Reduce recovery base case by 50%: 'AA+sf'
Expected impact upon the note rating of increased defaults and decreased recoveries (class A):
Original rating: 'AAAsf'
Increase default base case by 10%; reduce recovery base case by 10%: 'AAAsf'
Increase default base case by 25% and reduce recovery base case by 25%: 'AA+sf'
Increase default base case 50% and reduce recovery base case by 50%: 'Asf'
Fitch's counterparty criteria has been updated with an exposure draft, released in April 2016. All new ratings are based on the proposed criteria, as they reflect the agency's current credit view. At the time of assigning ratings, Fitch also discloses the rating sensitivity and the ratings achievable under the existing criteria; this gives an indication of the rating impact if the proposed criteria are not adopted and the existing criteria are maintained. As per the documentation, rating triggers regarding counterparty risks have been set at 'A-' and 'F1', a rating commensurate with a 'AAsf' rating under the current criteria and commensurate with a 'AAAsf' rating under the proposed criteria.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
DATA ADEQUACY
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Fitch also conducted a review of a small targeted sample of KBC's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.
Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
CRITERIA VARIATION
Due to the specificities of the Belgian market with regard to the security type (such as all-sum mortgages or mortgage mandates) and the products (such as credit facilities), Fitch has adjusted its original loan-to-value (OLTV) calculations in some cases to obtain figures compatible with its probability of default matrix. Such adjusted OLTV values are referred to as the OMTV. This is a variation from Fitch's Criteria Addendum: Belgium - Residential Mortgage Assumptions.
A borrower may have been granted several loans (under credit facilities) at several points in time, secured by the same security under a so called "all-sums mortgage". Moreover, in some cases, the loan that was originally granted to purchase the residential property used as security has already been repaid. In such instance, the traditional OLTV calculation will not reflect a borrower's willingness to pay on his/her property. Considering that in most cases, residential loans are fully backed by a security or an additional mechanism (comprised of a mortgage and/or a mortgage mandate), the residential loan amount can be approximated by the security registered amount - or in the case of a mandate, the potentially registered amounts - over such residential property.
In some cases, the OLTV ratio is therefore approximated by dividing the sum of the amounts specified in the mortgage registration and other security arrangements by the value of the property to which the mortgage and other security arrangement relates.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by KBC as at 31 March 2016.
-Yearly origination volumes, monthly dynamic prepayment data, data on cumulated recovery and data on cumulative defaults from 2002 to 2015, provided by KBC as at 31 March 2016.
MODELS
The models below were used in the analysis. Click on the link for a description of the model.
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