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Rating Action:

Moody's assigns provisional ratings to notes to be issued by Closed Joint Stock Company "Mortgage agent ITB 2013", Russian RMBS

23 Oct 2013

Approximately RUB [3,000.5] million of Debt Securities affected

London, 23 October 2013 -- Moody's Investors Service has assigned provisional long-term credit ratings to Notes to be issued by Closed Joint Stock Company "Mortgage agent ITB 2013":

....RUB[3,000.5]M Class A Residential Mortgage Backed Fixed Rate Notes due 2046, Assigned (P)Baa3 (sf)

....RUB[529.5]M Class B Notes were not rated by Moody's.

This transaction is the second securitisation of mortgages originated by Investment Trade Bank (B3), ("ITB"). The portfolio consists of the Russian residential mortgage loans serviced by Investment Trade Bank. DeltaCredit Bank (Baa3/P-3) will be acting as back-up servicer in the transaction.

RATINGS RATIONALE

The rating takes into account the credit quality of the underlying mortgage loan pool, from which Moody's determined the MILAN Credit Enhancement and the portfolio expected loss, as well as the transaction structure and legal considerations. The expected portfolio loss of 8% and the MILAN required credit enhancement of 29% serve as input parameters for Moody's cash flow model and tranching model, which is based on a probabilistic lognormal distribution as described in the report "The Lognormal Method Applied to ABS Analysis", published in July 2000.

The most significant driver for the MILAN Credit Enhancement number, which is in line with other MILAN CE numbers in the Russian RMBS transactions was the limited amount of historical information available from the originator and the fact that for about 39.4% of the borrowers income was verified using forms provided by the bank rather than official tax forms. The main driver for the expected loss, which is also in line with expected losses assumed for other Russian RMBS transactions, was the limited historical data available on the originator's portfolio. The weighted average current loan-to-value (LTV) of 68.99% based on minimum of purchase price and valuation or 62.95% based on valuation alone is slightly higher than the LTV observed in other Russian RMBS transactions.

The MILAN Credit Enhancement and the expected loss also reflect the fact that approximately 68.5% of mortgages were originated by the third-party originators and purchased by ITB. As such, there is only limited information available on the historical performance of the mortgages originated by these entities. This is mitigated by the fact that the third-party originators were accredited by Agency for Housing Mortgage Lending OJSC ("AHML") and the ITB and all mortgages were underwritten by ITB in accordance with their underwriting processes before being granted by the third-party originators.

The transaction benefits from an amortising reserve fund initially sized at 2.35% of the notes at closing and building up to 4.7% of the outstanding notes balance with the excess spread. The reserve fund is replenished before the interest payment on the unrated Class B notes. Subject to conditions such as cumulative defaults being below 5%, no unpaid principal deficiency, and Servicer rating being at least B3, the reserve fund may amortise at 4.7% of the outstanding notes down to a floor of 1.5% of initial note balance.

The provisional ratings address the expected loss posed to investors by the legal final maturity of the Notes. Moody's issues provisional ratings in advance of the final sale of securities, but these ratings represent only Moody's preliminary credit opinions. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavour to assign definitive ratings to the Notes. A definitive rating may differ from a provisional rating. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

The V Score for this transaction is High, which is in line with the score assigned for the Russian RMBS sector. The High V-Score reflects uncertainty associated with legal and regulatory environment in the sector, limited experience of the originator in the securitisation market, and limited performance data available for the book of the originator. V-Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. High variability in key assumptions could expose a rating to more likelihood of rating changes. The V-Score has been assigned according to the report "V Scores and Parameter Sensitivities in the Major EMEA RMBS Sectors" published in April 2009.

Moody's Parameter Sensitivities: Even if the portfolio expected loss was increased from 8.0% to 10.0% and MILAN Credit Enhancement was increased from 29% to 40.6%, the model output indicates that the Class A notes would have achieved Baa3.

Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.

The principal methodology used in this rating was Moody's Approach to Rating RMBS using the MILAN Framework published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other Factors used in this rating are described in Key Legal and Structural Rating Issues in Russian Securitisation Transactions, published in June 2007.

In rating this transaction, Moody's used a cash flow model to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) the loss derived from the cash flow model in each default scenario for each tranche.

Therefore, Moody's analysis encompasses the assessment of stress scenarios.

REGULATORY DISCLOSURES

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments in this transaction.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF345317.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Olga Gekht
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Michelangelo Margaria
VP - Sr Credit Officer/Manager
Structured Finance Group
Telephone:+39-02-9148-1100

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns provisional ratings to notes to be issued by Closed Joint Stock Company "Mortgage agent ITB 2013", Russian RMBS
No Related Data.
© 2021 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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