Fitch Upgrades the F-E Mortgages Series and Heliconus
FEMO1, FEMO2 and Heliconus are three Italian RMBS transactions originated and serviced by UniCredit S. p.A. (BBB+/Negative/F2).
KEY RATING DRIVERS
Adequate Credit Support
Credit enhancement (CE) has increased over the past 12 months as a result of portfolio redemptions, with Fitch's calculated annualised principal repayment rates averaging between 11% and 12%, and the fully sequential principal pay-down structure in all transactions. Pro rata redemption is no longer possible in the FEMO series due to an irreversible breach of triggers. Fitch's analysis shows that current credit enhancement is sufficient to support higher ratings for FEMO1's and FEMO2's junior rated notes and Heliconus class B notes, leading to today's upgrades.
Stable Asset Performance
Asset performance in the FEMO series has remained broadly stable over the past 12 months. According to Fitch's calculations, late-stage arrears are 3.3% (FEMO2) and 3.3% (FEMO1) compared with 3% (FEMO2) and 3.6% (FEMO1) a year ago, while they are 4.4% in Heliconus, versus 2.6% a year ago. Based on Fitch's data elaboration, the volume of defaults (loans with eight and 12 unpaid instalments in the FEMO series and Heliconus, respectively) has seen a limited increase of 10bp in Heliconus and FEMO1 to currently 3.6% and 5.3%, and a 20bp increase in FEMO2 to 5.6%.
In Fitch's view, the high seasoning of the transactions, which closed more than 10 years ago, underpins the stable asset performance.
Payment Holidays; Maturity Extensions
Fitch did not receive any updated information about payment holidays and maturity extensions for the three transactions. The agency assumed that, in line with the Italian market data, about 5% of the current pool is on payment holidays or has extended its tenor, and has therefore considered them as late-stage arrears to reflect the potentially weaker credit profile of relevant borrowers. However, this adjustment had no impact on the ratings.
Capped Recovery; Lengthy Recovery Timing
Fitch has capped the recovery rate at 100% of the defaulted balance for all three transactions despite the fairly low average current loan-to-value ratio of the remaining portfolios, and has distributed its recoveries over 14 years to account for the lengthy recovery timing in Italy. The stress had no impact on the ratings.
Commingling Risk Sized
No commingling reserve is available in FEMO1 and Heliconus. In FEMO2, UBS Limited (A+/Stable/F1) will make a EUR5m payment in favour of the issuer in the event of a sudden default of the servicer to mitigate commingling risk. However, Fitch believes it is unlikely that this contingent payment obligation will be taken on by a replacement swap counterparty, should the need to replace UBS arise in the future. Fitch reduced the available CE by the estimated one-month commingling loss of between 1.6% and 1.7% in all three transactions and found the notes' ratings were resilient to this stress.
FEMO2 Interest Deferability Constraint
The class C notes of FEMO2 can defer interest according to their terms and conditions if the gross cumulative defaults exceed 6.9% of the initial portfolio balance. With the cumulative gross default rate currently standing at 5.6%, in Fitch's view deferral is likely to occur given our default expectation for the remaining portfolio. In its rating analysis, Fitch has verified that the deferral period is limited, deferrals are fully recovered in advance of the notes' legal final maturity in the rating scenario of the notes and do not occur when the class C notes are the most senior notes outstanding, otherwise it would be an event of default under the notes.
According to its Criteria for Rating Caps and Limitations in Global Structured Finance Transactions, Fitch has capped the rating of class C at 'Asf'.
RATING SENSITIVITIES
Changes to Italy's Long-Term Issuer Default Rating (BBB+/Stable) and the rating cap for Italian structured finance transactions, currently 'AA+sf', could trigger rating changes on the notes rated at this rating level.
Deterioration in asset performance beyond Fitch's standard assumptions would also trigger negative rating actions.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring.
Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.
Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis:
-Loan-by-loan data provided by the European Data Warehouse as at end-March 2016 (FEMO 2 and Heliconus) and end-April 2016 (FEMO 1)
-Transaction reporting provided by UniCredit S. p.A. as at June (FEMO 1) and July (FEMO2 and Heliconus).
Комментарии