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Cash flow model-Securitization Rating
The cash flow model tests the performance of four tranches (A, B, C, D) under different stress scenarios by applying rating-specific default rates, loss severities, and prepayment stresses. The model outputs show that Tranche A achieves an AAA rating, Tranche B achieves an A rating, Tranche C achieves a BB rating, and Tranche D achieves a B rating as they are the highest stress levels where each tranche passes the timely interest and ultimate principal tests.
Cash flow model-Securitization Rating
- 2. Tranche A Tranche B TrancheC Tranche D Structure Collateral Pool-Borrowers Originator Installments Special Purpose Vehicle Sell Collateral Pool Proceeds Collections Account(Overseen by Trustee) Payments from borrowers deposited by Originator Issue Tranches Proceeds Payments passed through in order of Priority to investors Consideration Placement of bonds Investors
- 3. Model information-Cash FlowAnalysis Collateral Pool Defaults and Prepayment stresses Rating specific Default and Loss rates and CPR applied Cash Flow Waterfall and Priorities of Payments Purpose •The excel Cash Flow model replicates the waterfall and priorities of payments to generate scenario based pro-forma cash flows. Scenarios • Each scenario is a rating specific loss scenario that runs from a hypothetical recession from a starting month to ending month. • A Prepayment stress is also modeled that runs from a start month to an end month. Greater the prepayment rate, lesser the excess spread and more stressful the scenario. Ultimate Principal • We test for ultimate principal given the pass through nature of the notes . •A Tranche would pass a rating level if it gets redeemed by its legal final maturity date Timely Interest • A Tranche passes a rating level if it is paid its interest accrued on all interest payment dates up to its redemption date Rating Level • A Tranche is assigned a rating if it passes on the above 2 tests at the highest rating level tested Model Output
- 4. Deal Structure Assets Starting BalanceMargin Type First Payment Date Maturity Date Maturity(Months) € 100,000,000 7.50% Fixed 15-Jan-16 15-Dec-24 108 Liabilities Tranche Starting Balance Type Index Margin Subordination A € 45,000,000 Floating 1 Month Euribor 1.50% 55.00% B € 25,000,000 Floating 1 Month Euribor 2.00% 30.00% C € 20,000,000 Floating 1 Month Euribor 3.00% 10.00% D € 10,000,000 Floating 1 Month Euribor 3.50% 0.00% Total € 100,000,000 Date and timing Closing date 15-Dec-15 First notes Payment Date 15-Jan-16 Notes Legal Final Maturity date 15-Dec-25 Day Count Fraction Actual/360 Payment Frequency Monthly Senior Fees Trustee Fee 0.15% Servicer Fee 0.20% Administrative Fee 0.05% Fee charged as a % of the previous' month ending collateral balance
- 5. Deal structure Waterfall UseInterest Proceeds Use Principal Proceeds 1. Trustee Fee 2. Servicer Fee 3. Administrative Fee 4. Tranche A interest 5. Tranche B Interest 6. Tranche C Interest 7. Tranche D Interest 8. Tranche A principal (until Tranche is redeemed) 9. Tranche B principal (until Tranche is redeemed) 10. Tranche C principal (until Tranche is redeemed) 11. Tranche D principal (until Tranche is redeemed) 12. Release to excess spread Senior Fee Payments Interest Payments Principal Payments Retained by SPV
- 6. Model Assumptions Recession Simulation The modelstresses cash flows by applying a recession that runs from a start month to an end month. This scenario results in foreclosures-leading to defaults and recoveries applied equally across the months. This has 2 components Prepayments The model applies prepayments to the collateral pool. Although prepayments accelerate the redemption of the notes, they also reduce the balance faster, resulting in lesser overall interest collections to service the interest on the liabilities This is entered as an annualized value (CPR) Interest Rates The structure has fixed rate assets-but floating rate liabilities (indexed to 1 month Euribor). An adverse movement in interest rates can increase interest liabilities. Entered as a vector Default Rate The proportion of the beginning balance that defaults Loss Severity The proportion of the defaulted balance that is lost and not recovered Net Loss The proportion of the beginning balance that is lost
- 7. The Rating Process RatingLevel Default Multiple Loss Multiple Defaults Applied Losses Applied Net Loss AAA 2.7 2.7 95% 68% 63.79% AA 2.2 2.2 77% 55% 42.35% A 2 2 70% 50% 35.00% BBB 1.5 1.5 53% 38% 19.69% BB 1.2 1.2 42% 30% 12.60% B 1 1 35% 25% 8.75% Defaults Default stresses Yes Defaults Applied 42% Losses Applied 30% Defaults and losses start month 1 Defaults and losses end month 36 Prepayments Prepayment stresses Yes Annualized CPR 5% Prepayment start month 1 Prepayment end month 36 Model Output Tranche Timely Interest Ultimate Principal A PASS PASS B PASS PASS C PASS PASS D FAIL FAIL Rating level dependent stress factors Constant CPR level of 5% for all scenarios
- 8. Model Results B level(base case) – 35% (Default Rate) × 25% ( Loss Severity) All Tranches pass at this level € - € 0.50 € 1.00 € 1.50 € 2.00 € 2.50 € 3.00 01/Jan/16 01/Apr/16 01/Jul/16 01/Oct/16 01/Jan/17 01/Apr/17 01/Jul/17 01/Oct/17 01/Jan/18 01/Apr/18 01/Jul/18 01/Oct/18 01/Jan/19 01/Apr/19 01/Jul/19 01/Oct/19 01/Jan/20 01/Apr/20 01/Jul/20 01/Oct/20 01/Jan/21 01/Apr/21 01/Jul/21 01/Oct/21 01/Jan/22 01/Apr/22 01/Jul/22 01/Oct/22 01/Jan/23 01/Apr/23 01/Jul/23 01/Oct/23 01/Jan/24 01/Apr/24 01/Jul/24 01/Oct/24 Millions Collateral Payments Recoveries Scheduled Principal Prepayments Interest € - € 10.00 € 20.00 € 30.00 € 40.00 € 50.00 € 60.00 € 70.00 € 80.00 € 90.00 € 100.00 A B C D Millions Notes Redemption A B C D Unpaid Principal
- 9. Model Results BB level– 42% (Default Rate) × 30% ( Loss Severity) Tranches A,B, and C pass at this level € - € 0.50 € 1.00 € 1.50 € 2.00 € 2.50 € 3.00 01/Jan/16 01/Apr/16 01/Jul/16 01/Oct/16 01/Jan/17 01/Apr/17 01/Jul/17 01/Oct/17 01/Jan/18 01/Apr/18 01/Jul/18 01/Oct/18 01/Jan/19 01/Apr/19 01/Jul/19 01/Oct/19 01/Jan/20 01/Apr/20 01/Jul/20 01/Oct/20 01/Jan/21 01/Apr/21 01/Jul/21 01/Oct/21 01/Jan/22 01/Apr/22 01/Jul/22 01/Oct/22 01/Jan/23 01/Apr/23 01/Jul/23 01/Oct/23 01/Jan/24 01/Apr/24 01/Jul/24 01/Oct/24 Millions Collateral Payments Recoveries Scheduled Principal Prepayments Interest € - € 10.00 € 20.00 € 30.00 € 40.00 € 50.00 € 60.00 € 70.00 € 80.00 € 90.00 € 100.00 A B C D Millions Notes Redemption A B C D Unpaid Principal
- 10. Model Results BBB level– 53% (Default Rate) × 38% ( Loss Severity) Tranches A and B pass at this level € - € 0.50 € 1.00 € 1.50 € 2.00 € 2.50 € 3.00 01/Jan/16 01/Apr/16 01/Jul/16 01/Oct/16 01/Jan/17 01/Apr/17 01/Jul/17 01/Oct/17 01/Jan/18 01/Apr/18 01/Jul/18 01/Oct/18 01/Jan/19 01/Apr/19 01/Jul/19 01/Oct/19 01/Jan/20 01/Apr/20 01/Jul/20 01/Oct/20 01/Jan/21 01/Apr/21 01/Jul/21 01/Oct/21 01/Jan/22 01/Apr/22 01/Jul/22 01/Oct/22 01/Jan/23 01/Apr/23 01/Jul/23 01/Oct/23 01/Jan/24 01/Apr/24 01/Jul/24 01/Oct/24 Millions Collateral Payments Recoveries Scheduled Principal Prepayments Interest € - € 10.00 € 20.00 € 30.00 € 40.00 € 50.00 € 60.00 € 70.00 € 80.00 € 90.00 € 100.00 A B C D Millions Notes Redemption A B C D Unpaid Principal
- 11. Model Results A level– 70% (Default Rate) × 50% ( Loss Severity) Tranches A and B pass at this level € - € 0.50 € 1.00 € 1.50 € 2.00 € 2.50 € 3.00 01/Jan/16 01/Apr/16 01/Jul/16 01/Oct/16 01/Jan/17 01/Apr/17 01/Jul/17 01/Oct/17 01/Jan/18 01/Apr/18 01/Jul/18 01/Oct/18 01/Jan/19 01/Apr/19 01/Jul/19 01/Oct/19 01/Jan/20 01/Apr/20 01/Jul/20 01/Oct/20 01/Jan/21 01/Apr/21 01/Jul/21 01/Oct/21 01/Jan/22 01/Apr/22 01/Jul/22 01/Oct/22 01/Jan/23 01/Apr/23 01/Jul/23 01/Oct/23 01/Jan/24 01/Apr/24 01/Jul/24 01/Oct/24 Millions Collateral Payments Recoveries Scheduled Principal Prepayments Interest € - € 10.00 € 20.00 € 30.00 € 40.00 € 50.00 € 60.00 € 70.00 € 80.00 € 90.00 € 100.00 A B C D Millions Notes Redemption A B C D Unpaid Principal
- 12. € - €10.00 € 20.00 € 30.00 € 40.00 € 50.00 € 60.00 € 70.00 € 80.00 € 90.00 € 100.00 A B C D Millions Notes Redemption A B C D Unpaid Principal Model Results AA level – 77% (Default Rate) × 55% ( Loss Severity) Only Tranche A passes at this level € - € 0.50 € 1.00 € 1.50 € 2.00 € 2.50 € 3.00 01/Jan/16 01/Apr/16 01/Jul/16 01/Oct/16 01/Jan/17 01/Apr/17 01/Jul/17 01/Oct/17 01/Jan/18 01/Apr/18 01/Jul/18 01/Oct/18 01/Jan/19 01/Apr/19 01/Jul/19 01/Oct/19 01/Jan/20 01/Apr/20 01/Jul/20 01/Oct/20 01/Jan/21 01/Apr/21 01/Jul/21 01/Oct/21 01/Jan/22 01/Apr/22 01/Jul/22 01/Oct/22 01/Jan/23 01/Apr/23 01/Jul/23 01/Oct/23 01/Jan/24 01/Apr/24 01/Jul/24 01/Oct/24 Millions Collateral Payments Recoveries Scheduled Principal Prepayments Interest
- 13. Model Results AAA level– 95% (Default Rate) × 68% ( Loss Severity) Only Tranche A passes at this level € - € 0.50 € 1.00 € 1.50 € 2.00 € 2.50 € 3.00 01/Jan/16 01/Apr/16 01/Jul/16 01/Oct/16 01/Jan/17 01/Apr/17 01/Jul/17 01/Oct/17 01/Jan/18 01/Apr/18 01/Jul/18 01/Oct/18 01/Jan/19 01/Apr/19 01/Jul/19 01/Oct/19 01/Jan/20 01/Apr/20 01/Jul/20 01/Oct/20 01/Jan/21 01/Apr/21 01/Jul/21 01/Oct/21 01/Jan/22 01/Apr/22 01/Jul/22 01/Oct/22 01/Jan/23 01/Apr/23 01/Jul/23 01/Oct/23 01/Jan/24 01/Apr/24 01/Jul/24 01/Oct/24 Millions Collateral Payments Recoveries Scheduled Principal Prepayments Interest € - € 10.00 € 20.00 € 30.00 € 40.00 € 50.00 € 60.00 € 70.00 € 80.00 € 90.00 € 100.00 A B C D Millions Notes Redemption A B C D Unpaid Principal
- 14. Model Results-Summary Ratings Assumptions RatingLevel Default Multiple Loss Multiple Defaults Applied Losses Applied Net Loss Tranches Passed AAA 2.7 2.7 95% 68% 63.79% A AA 2.2 2.2 77% 55% 42.35% A A 2 2 70% 50% 35.00% A,B BBB 1.5 1.5 53% 38% 19.69% A,B BB 1.2 1.2 42% 30% 12.60% A,B,C B 1 1 35% 25% 8.75% A,B,C,D CPR:5% Tranche Rating Level A AAA B A C BB D B