Press Releases / 13.02.2015

Press Release as of 13.02.2015

OOO Raiffeisen Capital Asset Management Company

CJSC AK&M Rating Agency assigned a 'A' tier 3 national scale credit rating to MPC GC-2 mortgage participation certificates, with a stable outlook.

The rating assigned reflects a high probability that MC GeoCapital, Ltd.Co providing discretionary management services in respect of the mortgage collateral for mortgage securities issued under the management regulations registered by the Bank of Russia on May 16, 2014 subject to the Russian law "On mortgage securities" will meet its obligations in respect of the owners of mortgage participation certificates MPC GC-2.

The backbone of the mortgage coverage for MPC GC-2 is a pool of mortgage certificates under loan agreements with borrowers CJSC Rapid and CJSC Rusincom whose core business activity is the lease of their real estate property and financial transactions related to borrowing and lending funds. The total amount of principal under loan agreements reaches RUB 2,641,680 thousand, the interest rate being 16% p.a. The indicative value of one MPC formalized by a contract of assignment of rights under mortgages between GeoCapital, Ltd. and B&N Bank JSC dated August 22, 2014 was 660 rubles 42 kopecks as of the issue date according to the amount of the contract, or 683 rubles 15 kopecks according to the calculation procedure confirmed by the effective Mortgage Collateral Assessment Regulation (see FFMS Order 05-59/pz-n as of November 1, 2005), attested by a statement of mortgage collateral provided by a specialized depositary. The total number of certificates provided is 4,000,000. Total receivables under mortgage collateral (including interest payments) are expected to reach ca. RUB 4,480 million. The mortgages are secured by the borrowers' own commercial real estate. The total value of collateral estimated by InvestOcenka LLC engaged as an appraiser based on a comparative approach RUB 3,813,704 thousand (unadjusted for the cost of land plots the borrowers hold under a lease). The loan agreements providing for the principal repayment expire on July 25, 2018 (for CJSC Rusincom), July 28, 2019 (for CJSC Rapid).

AK&M Rating Agency appreciates the fairly high value of the mortgaged property indicating an acceptable level of losses on mortgage collateral as a major positive rating driver for the MPC GC-2 mortgage participation certificates.

As a result of the scenario analysis conducted by AK&M analysts based on the consideration of a complete group of events including the borrowers' defaults on principal, the average weighted level of investors' direct losses (unadjusted for compensations to the management company, the registrar and the depositary as well as the mortgage collateral servicing costs) is estimated at 19%, which falls under the rating category and tier assigned according to the Agency's reference metrics. It should be noted that the possible loss assessment procedure involved the adjusted (stress-tested) cost of collateral estimated by means of a direct survey of the real estate property used as the collateral by AK&M RA experts and the comparative peer analysis. Besides, the rating research considered additional expenditures arising from the recovery and subsequent disposal of the collateral.

The analysis of the borrowers' activity demonstrated the insufficient retail / commercial real estate rental yield, thus calling into question the borrowers' ability to repay the principal at the expense of the funds earned from the companies' business operations. At the same time, given that the non-resident creditors have been long-term sources of financing for the borrowers throughout their whole history, we believe that the probability of a default on interest is totally insignificant. This assumption is backed by the absence of any delays in payments on the mortgage notes which amounted to ca. RUB 152 million in the third and fourth quarter of 2014 (100% of the total payables) as proven by the official depositary data for MC GeoCapital, Ltd.

The key risk factor considered by AK&M Rating Agency when estimating the credit status of the MPC GC-2 mortgage participation certificates is the borrowers' dependence on the financial capacity of the counterparties registered under foreign jurisdictions. In particular, according to the cash flow budgets provided by the borrowers, their ability to repay the principal is mainly based on the repayment and provision of loans from the non-resident companies.

Besides, we note the mismatch between the expiration date of the mortgage collateral management contract (March 31, 2019) and the expiration date of the loan agreement with OJSC Rapid (July 28, 2019), which could spell the failure to recover the debt attributable to the receivables (regarded as part of the collateral) ahead of the maturity date, and the need to assign the receivables so as to ensure the due payments of mortgage securities holders.

MC GeoCapital, Ltd.Co is a relatively small management company located in Moscow. It is licensed to manage investment funds, mutual funds and non-state pension funds (lic. no. 21-000-1-00662 as of September 17, 2009 issued by Russia's Federal Financial Markets Service). As of December 31, 2014, the company's equity capital (own funds) totaled RUB 88 million, the amount of funds managed reaching RUB 3.5 billion. Earlier, the Company was not engaged in the management of mortgage securities.

This press release is based on the Statement of assignment of a credit rating to MPC GC-2 mortgage participation certificates.

The credit 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.

AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).


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