National Home Mortgage Finance Corporation (NHMFC) is planning a fourth securitization exercise called BALAI Bonds 2, for a portion of its Residential Loan portfolio.

The exercise will involve a total issuance of around P319.322 million, consisting of one tranche of Senior Notes and one tranche of Subordinated Notes.

The Class A Senior Notes are worth P150.0 million, and shall be amortized using the Controlled Amortization method with a pre-defined amortization schedule during the Controlled Amortization Period.

The Class B Subordinated Notes are worth around P169.322 million, and will be amortized after all Senior Notes have been settled, with variable interest payable quarterly.

Philippine Rating Services Corporation (PhilRatings) assigned Conditional Issue Credit Ratings of PRS A plus for the Class A Senior Notes, and PRS Ba for the Class B Subordinated Notes. 

Obligations rated PRS A have favorable investment attributes and are considered as upper-medium grade obligations. Although obligations rated PRS A are somewhat susceptible to the adverse effects of changes in economic conditions, the obligor’s capacity to meet its financial commitments of the obligation is still strong.

Obligations rated PRS Ba, on the other hand, are less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties relating to business, financial, or economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.  

A Stable Outlook was likewise assigned to the ratings, meaning that the rating is likely to be maintained or to remain unchanged in the next twelve months.

The ratings for BALAI Bonds 2 are considered conditional until the executed documentation for the transaction has been submitted to PhilRatings for review.

The conditional ratings were assigned based on draft transaction documents, and will be converted into final ratings once PhilRatings has determined that the representations as stated in the initial documents are also captured in the final signed documents. 

The main considerations in the assignment of the Conditional Credit Ratings and Outlook include the Asset Pool collection performance, ongoing pandemic and economic recession, senior and subordinated notes structure, prepayment and interest rate risks, and transaction participants.

This is already the fourth securitization transaction entered into by NHMFC for its total Residential Loan portfolio.

As such, it may be expected that since the best performing assets of the portfolio have already been securitized previously, the next-best performing assets are backing the latest securitization.

It should be noted, however, that since the last securitization transaction, BALAI Bonds 1, completed in 2019, around half of the Asset Pool was originated from 2016 to 2018.

Though these may be considered to be from a more fresh batch of loans, the relatively lower seasoning may present a different element of risk to the transaction. 

It should also be noted that the asset quality of the first two Asset Pools securitized by the company has deteriorated throughout the life of their respective transactions.

The guarantee for both previous securitization transactions has not been called and payments on the transactions have been made on a timely basis. This proposed transaction, however, will not have any guarantee.