EhiFinance Ratings has a team of credit rating analysts dedicated to analyzing Structured Finance Transactions. Our Structured Finance team can cover conventional asset classes like RMBS, Consumer ABS, Credit Card ABS, Auto ABS, Trade Receivables, CLO´s and CDO´s. We can also consider analyzing unconventional transactions that may not strictly fall into one of the categories mentioned. Structured finance products and debt instruments are typically issued through bankruptcy-remote Special Purpose Vehicle (SPV) backed by one or more cash flow generating assets, also referred to as the underlying asset/s of the vehicle.
EthiFinance Ratings’ general Structured Finance methodology provides a flexible framework that is adaptable to the unique characteristics of our clients’ transactions while maintaining our commitment to excellence in rating delivery. On the other hand, our robust asset-class-specific methodologies are well prepared to deal with the specific asset characteristics of the different transactions.
Our unique approach is based on years of experience and knowledge of the European markets providing us with a holistic view that accounts for both the quantitative such as collateral quality as well as qualitative variables like the track record of the stakeholders or the sturdiness of the structure.
We take pride in the transparency of our rating reports that clearly explain the key drivers and underlying assumptions of the transaction analyzed, always making sure that investors and arrangers are clearly informed.
Our methodologies are based on two key drivers, the quantitative analysis, based on a Cash Flow analysis, and the Stress Testing of Loss of Income Scenarios, which can be built using a Montecarlo simulation or with our Corporate Idealized Default-Rate Matrix. The second driver is qualitative and is based on the analysis of economic, operational, legal, and other risk factors that may affect the expected loss.
In the case of an SME CLO, the SPV issues notes or bonds collateralized by a pool of loans granted to Small and Medium Enterprises (SMEs. EthiFinance Ratings has developed quantitative tools to model the possible outcomes and better assess the credit rating of the SPV.
Reverse Residential Mortgage Back Securities (RRMBS)
Unlike standard mortgages, reverse mortgages have an undetermined maturity date, and their amortization schedule is composed of one payment made at the end of its life. Our credit rating methodology for this type of securities considers factors that directly affect the expected recovery of the mortgages and, therefore, the SPV’s ability to pay back its financial obligations.
Because of the short life of this type of assets, it is common that the terms of the transaction specify a period on which the SPV is continuously renewing its pool of Trade Receivables (TR), acquiring new ones with the money obtained by the amortization of those previously issued. EthiFinance Ratings’ quantitative analysis approach for this type of transactions is based on the historical performance of a pool of TR, with similar characteristics to the ones in the SPV, issued by the same Originator/s.
This kind of transactions may have a variety of underlying assets such as, Auto Loans, Credit Cards, Leases, Conventional consumer loans, etc. Because of this, the methodology is flexible enough to account for the specific characteristics of the underlying assets, using historical data consistent with the desired asset.
Utilities collection rights
This methodology is applicable to any right of collection whose objective is to recover the extra-costs that have occurred within the Systems that makes up the different utilities (water, gas, electricity, etc.) that have led to the regulated revenues of the system not covering their corresponding costs. There are two categories of extra-costs that are susceptible to be recovered and that in turn encompasses different approaches to its analysis. By way of example, they are: The sunk costs of a System and Extra-costs that arise unexpectedly.