Press Releases / 20.05.2015

Press Release as of 20.05.2015

GFT Mutual Funds CJSC

AK&M Rating Agency assigned an 'A' tier 1 national scale credit rating to MPC-2 mortgage participation certificates. The outlook is stable.

The rating reflects the high creditworthiness of the mortgage securities resulting from the low risk of improper performance by GFT Mutual Funds CJSC acting as the trust mortgage security manager according to the applicable management rules registered by the regulatory authority on November 21 2013 and Federal Law no. 1520-FZ "On mortgage-backed securities" of its obligations to the holders of MPC-2 mortgage participation certificates.

The backbone of the MPC-2 mortgage security is a pool of mortgages under loan contracts of the companies operating within the investment and development holding Clover Group with a net asset value of approximately USD 600 million. The core activities of the borrowers are the lease of their real property and provision of related services to tenants.

The total amount of principal debt under the loan agreements is RUB 5,773,000 thousand, the interest rate being 7.15% p.a. The indicative value of one MPC as of the issue date (December 2, 2012) was RUB 5,913.54 as evidenced by the REGION Custody Company. The total number of certificates issued is 1,000,000. Total revenues on the mortgage collateral (including interest payments) are projected at RUB 12,377 million. The mortgage loan receivables are secured by the mortgage of real estate fully belonging to the borrowers. The total value of mortgaged real estate is RUB 5,995,600 thousand. The loans under the contracts shall mature on October 9, 2029, the trust management contract shall expire on October 10, 2029

The high credit rating of the MPC-2 mortgage participation certificates primarily reflects the acceptable creditworthiness of the mortgage borrowers, the high market value of the mortgaged real estate, the low potential losses on the mortgage portfolio as a result of probable mortgagor defaults.

The mortgage borrowers are operating in economically advanced regions of Russia: St. Petersburg, Rostov region, Primorsky Krai, Tyumen region, and Khanty-Mansi autonomous area - Yugra. All these federal subjects of Russia are permanently ranked in the top 20 leading Russian regions in the cumulative level of relative credit capacity, according to AK&M Rating Agency's reviews (rankings). The borrowers' activities are generating stable cash flows earning revenues from the lease of own real estate property. As of January 1, 2015, the average interest coverage ratio was 1.53%, indicating a moderately high capacity of the companies to meet their current debt obligations, as proven by the absence of overdue debts across the mortgage pool since the moment the MPC were issued. The borrower default probability on the long-term horizon estimated using the AK&M RA methodology ranges from 11% to 27%.

The mortgage commercial real estate property mainly includes modern Clover House retail, office and mixed-use centers with almost no vacant leasable floor space left. The ratio of mortgage market value to principal mortgage debt exceeds 80%.

According to our estimates, the average level of direct potential losses on the mortgage collateral (unadjusted for infrastructure remuneration and maintenance expenses) was 2.6% to 3.3%. Along with the default probability, adjustments to the mortgage value based on a review of the commercial real estate market in the regions where the borrowers are operating as well as additional expenses for the recovery and disposal of the pledged property were factored in the loss assessment. The resulting estimates constitute the key credit rating driver for MPC-2.

In AK&M Rating Agency's view, the credit rating of the mortgage participation certificates is additionally supported by the high institutional status of the special depository and the registrar providing support services for MPC-2. In particular, CJSC Depository Company REGION is a one of the three leading special depositories in Russia in terms of value of controlled assets provided as collateral for the mortgage securities, CJSC Computershare Registrar has pioneered creating a register of mortgage certificate holders in Russia and is currently taking the lead in the number of MPC served.

At the same time, the long duration of the mortgage scheme, the dependence of mortgage borrowers' solvency on external financing sources, the trust manager's limited mortgage collateral management experience including the skills of responding to stresses are essentially constraining the credit rating.

At the moment of issue, the mortgage participation certificates had an estimated tenor of almost 16 years. Given today's macroeconomic situation, any attempt of financial forecasting on such a long-term horizon bears an obvious element of conditionality. The ensuing substantial uncertainty as to possible changes in the financial profile of mortgage borrowers and the market situation as a whole is putting substantial pressure on the credit rating of MPC-2.

Another risk factor is the dependence of the borrowers' solvency on external financing in the form of interest on financial investments mainly composed of debt securities (interest-bearing notes). Should the financial stability of the interest-bearing note issuers impair, the mortgage borrowers' ability to meet their respective debt liabilities may be seriously weakened.

Despite the current track record of managing the mortgage collateral of four MPC issues, GFT Mutual Funds CJSC has so far not had a broad contingency management experience of recovering long-term overdue debt on receivables for the mortgage collateral and disposing of the mortgaged property provided by defaulted borrowers. This puts moderate pressure on the MPC rating, especially on the long-term horizon.

GFT Mutual Funds CJSC is a medium-sized management company in terms of assets under management. The company located in Moscow is a structural unit of GFT Group successfully operating in the Russian market since 1994. The company is licensed to manage investment funds, mutual funds and non-state pension funds (license no. 21-000-1-00948 as of September 19 2012 issued by Russia's Federal Financial Markets Service). As of March 31, 2015, the company's equity capital was approximately RUB 100 million. Besides MPC-2, GFT Mutual Funds CJSC manages the mortgage collateral of three more issues of mortgage participation certificates MPC-3, MPC-4 and MPC-5. As of April 30, 2015, total mortgage collateral managed by the company was RUB 14.6 billion.


This press release is based on the Statement of assignment of a credit rating to MPC-2 mortgage participation certificates. The rating assignment is based on the Credit Rating Methodology for Mortgage Participation Securities Secured by Commercial Real Estate (AK&M Rating Agency, 2015).

The rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.

AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.


AK&M Rating Agency

Ul. Gubkina 3, Moscow, Russia

Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.