Scope Ratings has a strong footprint in the European non-performing loan ABS market, ranking as SCI’s Service Provider of the Year in the space. The organisation has helped paved the way for the development of the sector, rating the first public NPL securitisation with an Italian government guarantee via the GACS scheme, and has successfully broadened its expertise across the asset class since then.
Scope has expanded its footprint to several countries as it delivers on its mission of offering an alternative and distinctively European perspective on credit risk as a leading European rating agency. NPL ABS is a core part of this mission.
In this area, the undoubted crowning achievement for Scope during the awards period has been rating the first public UK reperforming loan deal, in April 2022. Wolf Receivables Financing is a £315.4m gross-book-value (GBV) securitisation of UK reperforming unsecured consumer debt. With this transaction, the organisation now rates around 55 public primary or secondary NPL securitisations across Italy, Cyprus, Spain, Portugal, Ireland and the UK.
“The first transaction in every jurisdiction is always a challenge, as there are no reference points – and this transaction was the first-of-its-kind in the UK,” observes David Bergman, md and head of structured finance at Scope. He explains that the organisation received payment history on an extensive sample of borrowers. Processing the data was not a challenge, however, as the team is well equipped to manage large amounts of data.
Bergman adds: “We analysed historical data, paying particular attention to the borrower characteristics of the underlying sample to make sure observed borrower behaviour was representative for the portfolio being securitised.”
On top of this notable achievement, Scope has delivered non-public credit assessments or ratings for an additional 30 primary or secondary securitisations or senior financings across the same markets, as well as several deals in France.
Non-public bilateral transactions generally feature more complex waterfalls with equity leakage features, which pay out significant amounts to junior noteholders, as long as certain performance ratios are met. This makes the cashflow modelling more complex. However, the main challenge in bilateral transactions relates to the amount of information that the servicer is willing to share, which is less critical in more mature markets but can be an important hurdle in markets with fewer comparable transactions.
Looking back over the last 12 months, Scope has continued to progress in its market coverage and has rated two new public transactions in Ireland, one in the UK as well as transactions in Italy, Portugal and Spain on a regular basis. “This has been achieved because we have demonstrated to the market our growing expertise in NPLs. We have developed a deep understanding of this complex asset class,” observes Paula Lichtensztein, senior representative in structured finance at Scope.
She continues: “We have almost 100% coverage in Italy and have expanded to other markets. Our market penetration is growing, and we fully expect this to continue in the future.”
Scope attributes this to the fact that the team closely follows market trends and keeps up to date with developments in the sector. Analysts recently noted, for example, that there has been an increase in secondary portfolios being securitised, both publicly and privately.
Going forward, Scope will continue to assess different types of transactions in the primary and secondary market in the countries it covers. Bergman and the growing structured finance team are also hopeful that the organisation will assess a securitisation of NPLs in the traditionally low NPL jurisdictions in Northern Europe.
Bergman concludes: “We have worked with different market participants, both on primary and secondary deals. We have rated traditional transactions with the originator involved and we have also been approached by investors providing senior financing, interested in an independent risk assessment on their exposure.”-