Press Releases / 18.03.2016
Press Release as of 18.03.2016
OOO Raiffeisen Capital Asset Management Company
AK&M Rating Agency has affirmed the credit rating of MPC GC-2 issued by MC GeoCapital, Ltd.Co at 'B++' tier 2. The outlook is stable.
The rating 'B++' means that the MPC GC-2 mortgage participation certificates securing debt liabilities of financial instruments with a satisfactory degree of creditworthiness. The risk of a failure to meet obligations in time is insignificant. The rating assignment was based on the Credit Rating Methodology for Mortgage Participation Certificates as of October 30, 2015.
The MPC GC-2 mortgage pool is currently composed of mortgage certificates for the loan provided by B&N Bank (PJSC) to JSC Rusincom under the agreement as of July 25, 2008. The use of mortgage certificates of JSC Rusincom to collateralize the financial instruments of MC GeoCapital, Ltd.Co was stipulated by a contract of assignment between MC GeoCapital, Ltd.Co and B&N Bank (PJSC) as of August 22, 2014. The core activities of JSC Rusincom include the lease of its real estate property and financial transactions related to borrowing and lending. The principal debt under the above loan agreement is RUB 1,711,680 thousand, the interest rate being 16% p.a. The total value of collateral of JSC Rusincom estimated by InvestOtsenka LLC (engaged as the valuer) based on the comparative approach was RUB 2,468,801 thousand (unadjusted for the cost of land plots leased by the borrower). The ultimate maturity date for the loan agreement of JSC Rusincom is July 25, 2018. The total amount payable under the MPC GC-2 mortgage participation certificates in 2016-2018 is estimated at more than RUB 2,415 million.
MC GeoCapital, Ltd.Co issued MPC GC-2 on August 25, 2014 when the mortgage pool contained the mortgage instruments of two B&N Bank borrowers, the other borrower (besides JSC Rusincom) being JSC Rapid. The indicative value of one MPC GC-2 mortgage participation certificate was 660 rubles 42 kopecks as of the issue date according to the calculation procedure approved by the effective Mortgage Collateral Assessment Regulation (see FFMS Order 05-59/pz-n as of November 1, 2005), which is certified by a statement of mortgage collateral provided by a specialized depository. The total number of certificates issued is 4,000,000. Total revenues from the mortgage pool (including interest payments) were initially projected at approximately RUB 4,480 million, the discretionary mortgage pool management contract expiration date was set to March 31, 2019. The advanced repayment by JSC Rapid of its debt in late 2015 reduced the mortgage pool of MPC GC-2 and prevented the owners of the MPC GC-2 mortgage participation certificates from earning ca. RUB 550 million in profits. With this in mind, AK&M Rating Agency estimated the investors' maximum missed profit at approximately 40% of the mortgage pool. The mortgages are currently secured by the commercial real estate belonging to JSC Rusincom only.
In AK&M Rating Agency's view, the credit rating of the mortgage-backed securities is essentially supported by the absence of overdue debt on the obligations constituting the mortgage pool of MPC GC-2, satisfactory quality of mortgage security for the JSC Rusincom loan, a high credit rating of B&N Bank (PJSC) (the loan originator and the settlement agent for transaction purposes), a high institutional status of the specialized depository (CJSC First Specialized Depository), a reputable registrar (JSC Independent Registrar Company). Besides, we appreciate the moderately high reliability of insurance coverage for the real estate assets provided by B&N Insurance LLC (the operator), an insurance company specializing in the mortgage insurance segment and accredited by AHML.
At the moment of rating assignment, AK&M Rating Agency could not detect overdue debt on the obligations constituting the mortgage pool of MPC GC-2. JSC Rusincom punctually honors its debt servicing obligations arising from the loan agreement assigned to the benefit of MC GeoCapital, Ltd.Co.
As a result of AK&M Rating Agency's scenario analysis 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 depository 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. Therefore, the quality of mortgage security for the JSC Rusincom loan was recognized as satisfactory. It should be noted that the possible loss assessment procedure involved the adjusted (stress-tested) cost of collateral estimated during a direct survey of the real estate property provided 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.
B&N BANK (PJSC), the MPC GC-2 originator and the settlement agent for transaction purposes, has been successfully operating in the banking market of Russia for more than 22 years. B&N BANK is a reliable private financial institution, one of the leading banks in the domestic market. Russia's national rating agencies estimate the credit rating of B&N BANK at 'A+', Standard & Poor's international rating agency at 'A' (in terms of AK&M Rating Agency's national rating scale).
CJSC First Specialized Depository (established in 1996) chosen as the specialized custodian for MPC GC-2 was the first depository institution in Russia to obtain a license for specialized depository services. Today, First Specialized Depository ranks in the top 5 biggest specialized depositories of Russia and is reputable as a reliable and highly professional company.
JSC Independent Registrar Company engaged as the registrar of MPC GC-2 operating in the stock market since 1996 is one of the leading registrars in the Russian market. In 2015, the company's services covered up to 95% of the Russian market of mortgage participation certificates.
B&N Insurance LLC, the insurance company for MPC GC-2, is a universal insurance company operating in the market since August 2000. The company is currently a business unit of B&N BANK financial group, the bank being B&N Insurance's key partner in the development of the bank insurance business. The company's reliability is attested by the leading Russian rating agencies (the company is rated 'A' in terms of AK&M Rating Agency's national rating scale) and the stability of its general partner, B&N BANK (PJSC).
The rating of the MPC GC-2 mortgage participation certificates is constrained by the borrower's insufficient creditworthiness and dependence on the financial strength of counterparties registered under foreign jurisdictions.
for the 9-month period in 2015, net loss of JSC Rusincom was RUB 379 million. According to express tests conducted by AK&M Rating Agency, the current credit rating of JSC Rusincom is 'B+', sub-level 2.
Dependence on the financial strength of counterparties registered under foreign jurisdictions is an essential risk factor. In particular, according to projected cash flow budgets presented by JSC Rusincom, repayment of the principal loan debt, to a large extent, will be financed out of the funds received from non-resident companies in repayment of the loans previously provided to them.
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 the start of 2016, the company's equity capital exceeded RUB 100 million, the amount of assets managed exceeding RUB 27 million.
AK&M Rating Agency assigned a credit rating to the MPC GC-2 mortgage participation certificates for the first time on February 13, 2015. All rating action announcements are available on the akmrating.ru website.
For estimation purposes, we completely rely on the reliability of information provided by MC GeoCapital, Ltd.Co. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.
This press release is based on the Statement of assignment of a credit rating to the MPC GC-2 mortgage participation certificates and the Credit Rating Methodology for Mortgage Participation Certificates as of October 30, 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.
AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.
AK&M Rating Agency
Ul. Gubkina 3, Moscow, Russia
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.