Press Releases / 29.06.2016
Press Release as of 29.06.2016
GFT Mutual Funds CJSC
AK&M Rating Agency has affirmed the national scale credit rating of MPC-2 mortgage participation certificates at 'A' tier 1. The outlook is stable.
The rating reflects the moderately high credit quality of mortgage-backed securities resulting from a relatively 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 on real estate assets managed by the investment and development holding Clover Group, with a net asset value of approximately USD 600 million. The core activities of the borrowers are leasing of their real property and provision of related services to tenants.
The high rating of the MPC-2 mortgage participation certificates mainly results from the acceptable current creditworthiness of the mortgage borrowers, the high quality and diversification of the mortgage security, a relatively low share of infrastructure costs related to the management of mortgage coverage, acceptable yield on mortgage-backed securities.
Mortgage borrowers are operating in five economically developed regions of Russia (St. Petersburg, Rostov region, Primorsky Krai, Tyumen region and Khanty-Mansi autonomous area) with high levels of creditworthiness and a favorable investment environment. 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, with revenues earned from the lease of own real estate property. As of January 1, 2016, the average interest coverage ratio was 1.39x, 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 commercial real estate property used as mortgage collateral mainly includes modern Clover House retail, office and mixed-use centers with a useful life of no more than 13 years and high transport accessibility in their respective municipal entities. The office blocks generally feature premises of at least the 'B' class. The vacant leasable floor space is insignificant. Therefore, the collateral liquidity is estimated as moderately high.
The yield to maturity of MPC-2, according to AK&M Rating Agency's estimation guidelines, is a mere 1.4 p.p., lower than the interest rate on mortgage loan agreements, which indicates low potential losses and essentially contributes the MPC-2 credit rating.
The amount of infrastructure compensations established by the MPC-2 trust management rules is 1.9%, which is substantially below the 5% threshold set by Federal Law 152-FZ as of November 11, 2003. This makes a favorable impact on the investment appeal of securities, eventually increasing the return on these securities.
In AK&M Rating Agency's view, credit rating of the mortgage participation securities is additionally supported by a high institutional status of the specialized custodian and registrar which support MPC-2, as well as high reliability of the company which insured the mortgage collateral for the purpose of this transaction. In particular, Depository company REGION is among the top 3 leading Russian specialized custodians in terms of the value of controlled assets provided as collateral for the mortgage securities, while JSC Computershare Registrar pioneered creating a register of mortgage participation certificate holders in Russia and is currently taking the lead in the number of MPCs served. Rosgosstrakh LLC, the insurance company of the mortgage collateral, is one of the generally recognized leaders of the Russian insurance market.
In AK&M Rating Agency's view, the rating is constrained by the high concentration of the mortgage collateral, long duration of the mortgage scheme and somewhat worse financial viability of mortgage borrowers.
The largest borrower currently accounts for 37% of the total mortgage claims, the concentration of mortgage claims within two principal counterparties reaches 73%. Should at least one of them face a default, the discretionary manager will inevitably find it hard to dispose of the mortgage collateral, primarily due to its large size.
The principal debt under the mortgage loan agreements, as well as the MPC-2 certificates mature in October 2029. The substantial uncertainty as to possible changes in the financial profile of mortgage borrowers, the value of commercial real estate, as well as the general macroeconomic and geopolitical landscape across such a long-term horizon is objectively putting notable pressure on the credit rating of MPC-2.
Amidst a general deterioration in the macroeconomic situation, the profitability and return on business activities of mortgage borrowers mainly stayed negative in 2015. Consolidated revenue of the companies decreased by 6%, pre-tax profit decreased by almost 24%. This naturally impaired the main debt load parameters. Despite a reduction in total debt liabilities, the debt to EBITDA ratio increased from 8.8 to 9.1, the debt to OIBDA ratio from 19.5 to 21.9. The heavy borrowings remain one of the key rating constraints for MPC-2.
The MPC-2 Mortgage Participation Certificates (1,000,000 securities) were issued by the discretionary manager, GFT Mutual Funds CJSC, on December 2, 2013. The appraised value of one MPC as of the date of issue was 5,913 rubles 54 kopecks, as proven by a certificate of Depository company REGION. The amount of the principal debt on the mortgage-backed claims reaches RUB 5,773,000 thousand, the interest rate being 7.15% p.a. The mortgage loan receivables are secured by the mortgage of real estate fully belonging to the borrowers. The repayment date under all contracts is October 9, 2029, the discretionary management services contract expires on October 10, 2029
GFT Mutual Funds CJSC is a medium-sized management company in terms of assets managed. 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, 2016, the company's equity capital was approximately RUB 100 million. Besides MPC-2, GFT Mutual Funds CJSC manages the mortgage collateral of five more issues of mortgage participation certificates.
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 (AK&M Rating Agency, 2015).
AK&M Rating Agency assigned a reliability rating to MPC-2 for the first time on May 20, 2015. The last rating action was taken on May 20, 2015. All rating action announcements are available on the www.akmrating.ru website.
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.
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.