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Rating Action:

Moody's assigns Aaa (sf) to trade finance securitization notes of Prunelli Issuer I S.à r.l. acting in respect of its Compartment 2020-1

17 Oct 2020

USD1,450 million of debt securities rated

Hong Kong, October 17, 2020 -- Moody's Investors Service (" Moody's") has assigned the following definitive rating to the notes issued by Prunelli Issuer I S.à r.l. acting in respect of its Compartment 2020-1. The transaction is a cash securitization of a revolving portfolio of trade finance exposures to corporate and financial institutions originated by branches and subsidiaries of Standard Chartered Bank (SCB).

Issuer: Prunelli Issuer I S.à r.l. acting in respect of its Compartment 2020-1

....USD1,450,000,000 Series 2020-1 Notes, Assigned Aaa (sf)

RATINGS RATIONALE

When assigning the rating, Moody's analysis focused, among other factors, on:

(1) the credit enhancements and cash flow mechanisms of the transaction, including (a) the total over-collateralization at closing which is equal to 27.32% of the closing portfolio of USD1,994.99 million, (b) the stop-revolving cumulative default trigger of 5.71%, (c) the over-collateralization test which requires the asset amount to be at least USD1,791 million, (d) the reserve fund with a required amount of at least two months of notes coupon based on the then-current UST (US Treasury yield), and (e) the payment waterfall where interest and principal collections are not paid to the originators before the notes have been fully repaid;

(2) the relatively concentrated hypothetical portfolio that Moody's assumes in its modeling analysis will form the securitized portfolio of this transaction, based on the eligibility criteria and portfolio replenishment conditions;

(3) the credit quality of the servicers and originators, which are branches and subsidiaries of SCB, and the mechanisms to mitigate commingling and set-off risks, which require the servicer to transfer collections to the transaction accounts within two business days, and require the originator to provide additional assets to cover potential set-off amounts upon breach of certain rating triggers; and

(4) the legal and structural integrity of the transaction.

The following are the key characteristics of the hypothetical portfolio, which Moody's has constructed based on the eligibility criteria and portfolio replenishment conditions, and which has worse credit quality and higher concentrations than the actual initial portfolio:

(1) a 2.46% annualized weighted average default rate, corresponding to approximately Ba2/Ba3 credit quality, based on credit mapping of the assumed SCB's internal rating of each obligor in the hypothetical portfolio;

(2) a 0% fixed recovery rate assumption in the base-case modeling; and

(3) an effective number of obligors of about 45.

The credit quality of each of the obligors in the portfolio is assessed based on a credit mapping between SCB's internal ratings and Moody's rating factors. The initial securitized portfolio has a weighted-average credit quality corresponding to approximately Baa2/Baa3 credit quality based on the credit mapping.

Moody's has considered, among other things, the following key strengths of the transaction:

(1) The origination and servicing quality benefits from SCB's internal risk and credit policies, including an established internal rating system, as well as its lending experience in the regions to which the portfolio has exposures.

(2) The assets have short tenors with a weighted average life covenant of 91 days, and the securitized portfolio will amortize quickly after the revolving period, which ends early in case a stop-revolving trigger is breached.

(3) Interest and principal collections go through a single payment waterfall where collections are not paid to originators until the notes have been fully repaid.

(4) There is no currency mismatch between the notes and the underlying asset portfolio which are both denominated in US dollars.

(5) The underlying obligors are diversified across different jurisdictions, limiting the impact of a single jurisdiction event.

Moody's has also considered the following weaknesses and mitigants:

(1) Interest rate mismatch exists between the notes, which are linked to one-month UST, and the underlying assets, which are mostly fixed rate. Moody's has assumed a gradual increase in the interest rate on the notes but not the underlying assets in its modeling.

(2) The transaction provides very limited time for recovery on defaulted assets, with a legal final maturity of the transaction in April 2022, subject to extension if requested by majority noteholders and accepted by the originators. The latest maturity date of the assets is three months before legal maturity of the transaction, which provides limited time to take recovery actions against the defaulted obligors. Accordingly, Moody's has assumed no recoveries on the defaulted assets in its base-case modeling.

(3) The portfolio is concentrated in the banking industry, which represents 51% of the initial portfolio. The replenishment conditions allow the replenished portfolio to have up to 53% aggregate exposure to the banking, finance, insurance and real estate industries. Moody's has assumed a high concentration to the banking industry of close to 53% in the hypothetical portfolio, where a higher industry concentration increases the likelihood of high portfolio loss scenarios.

(4) Many obligors in the portfolio are domiciled in emerging market jurisdictions. Moody's has modeled stressed jurisdiction risk according to the portfolio concentration limits on jurisdictions based on Moody's foreign currency country ceilings for bonds.

(5) The portfolio can have exposure to various jurisdictions so long as the related jurisdiction concentration limits are met. The multi-jurisdiction nature of the portfolio involves legal complexity in transferring the assets from the originators to the transaction. The mitigants include (a) the representations and warranties given by the originators in relation to asset transfers, (b) the high level of subordination compared to the single-jurisdiction concentration limits, particularly for jurisdictions with lower credit quality, (c) the 0% recovery rate assumption in the base-case modeling, in which no benefit was given to the ability of the transaction to enforce security of the defaulted obligors, and (d) the use of declarations of trust on the assets that cannot be transferred by equitable assignment because of restrictions in applicable laws and contracts, as well as the power of attorney given by the originators which allows the transaction to take action against the obligors in case of default of the originators.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of financial institution and corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around Moody's forecasts is unusually high.

Moody's regards the coronavirus outbreak as a social risk under its environmental, social and governance (ESG) framework, given the substantial implications for public health and safety.

Key Transaction Characteristics:

The transaction is a revolving cash securitization of trade finance exposures, which are unsubordinated obligations owed by the obligors arising from trade financing activities.

The revolving period ends 12 months after the closing date (subject to extension if requested by majority noteholders and accepted by the originators), or earlier in case a stop-revolving trigger is breached. Following the end of the revolving period, the transaction will use all interest and principal collections from the portfolio to repay the notes.

New assets to be added to the portfolio during the revolving period are subject to the satisfaction of eligibility criteria and replenishment conditions, which include (1) exposure limits based on the SCB's internal ratings, (2) maximum weighted average life limit of 91 days, (3) concentration limits related to jurisdictions and industries, (4) a limit on the minimum effective number of obligors of 45, and (5) the satisfaction of the over-collateralization test following replenishment.

The initial portfolio consists of 6641 obligations from 287 obligors. The top three concentrated regions are Asia (61%), the Indian subcontinent (11%) and Europe (11%). The top five concentrated jurisdictions are Singapore (23%), China (17%), Hong Kong (14%), India (9%) and Switzerland (6%). The top five concentrated industries are Banking (51%), High Tech Industries (7%), Consumer goods: Non-durable (7%), Metals & Mining (7%) and Hotel, Gaming & Leisure (6%).

The originators and servicers of the transaction are (1) Standard Chartered Bank, UK Branch (counterparty risk assessment A1(cr) and foreign currency senior unsecured rating A1 with stable outlook for the head office, SCB), (2) Standard Chartered Bank (Hong Kong) Limited (counterparty risk assessment Aa3(cr) and foreign currency long term issuer rating A1 with stable outlook), and (3) Standard Chartered Bank (Singapore) Limited (counterparty risk assessment Aa3(cr) and foreign currency long term issuer rating A1 with stable outlook).

RATING METHODOLOGY:

The principal methodology used in this rating was Corporate Synthetic CDOs Methodology published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1214357. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:

A higher than expected default rate in the underlying portfolio could negatively impact the rating.

A multiple-notch downgrade of the servicers, which significantly increases the operational risk of the transaction, could also negatively impact the rating.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

Moody's took into account one or more third party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action and used the Due Diligence Assessment(s) in preparing the rating. This had a neutral impact on the rating.

The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

In rating this transaction, Moody's CDOROM™ is used to model the expected loss for each tranche. Moody's CDOROM™ is a Monte Carlo simulation tool which takes each underlying asset default probability as input. Each underlying asset default behavior is then modeled individually with a standard multi-factor model incorporating both intra- and inter-industry correlation. The correlation structure is based on a Gaussian copula. Each Monte Carlo scenario simulates defaults and if applicable, recovery rates, to derive losses on a portfolio. For a synthetic transaction, the model then allocates losses to the tranches in reverse order of priority to derive the loss on the tranches. By repeating this process and averaging over the number of simulations, Moody's can derive the expected loss on the tranches. For a cash transaction, the portfolio loss, or default, distribution produced by Moody's CDOROM™ may be input into a separate cash flow model in accordance with its priority of payment to determine each tranche's expected loss.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Joe Wong
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Jerome Cheng
Associate Managing Director
Structured Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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