National Home Mortgage Finance Corporation (NHMFC) is raising P533.1 million from its proposed sixth securitization transaction for its NHMFC Bonds 2023.
Philippine Rating Services Corporation (PhilRatings) announced that it has assigned Final Issue Credit Ratings of PRS A plus to the P290.0 million Class A Senior Notes and PRS Baa minus to the P243.1 million Class B Subordinated Notes of the NHMFC Bonds 2023. The outlook for both ratings is stable.
PRS A rating indicates favorable investment attributes and are considered as upper-medium grade obligations.
Although obligations rated PRS A are somewhat more susceptible to the adverse effects of changes in economic conditions, the obligor’s capacity to meet its financial commitments on the obligation is still strong.
Obligations rated PRS Baa exhibit adequate protection parameters but may possess certain speculative characteristics.
Adverse economic conditions and changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
The “plus” and “minus” further qualify the assigned ratings while a stable outlook indicates that the rating is likely to be maintained or to remain unchanged in the next 12 months.
PhilRatings said the ratings and outlook took into consideration the expectations on the asset pool’s collection performance and impact of current economic headwinds on the paying ability of loan obligors.
It also considered the senior and subordinated notes structure, which provides for subordination coverage of the senior notes, as well as excess spread and substantial liquidity reserves; expectations of limited prepayment and interest rate risks; and experienced transaction participants.
NHMFC’s proposed sixth securitization transaction, called NHMFC Bonds 2023, is made up of a pool of low-cost and socialized housing loans acquired by NHMFC from the Home Development Mutual Fund (HDMF), Government Service Insurance System (GSIS), and certain real estate developers through the Housing Loan Receivables Purchase Program (HLRPP).
The securitization transaction, consisting of one tranche of senior notes and one tranche of subordinated notes, involves a total issuance amount of approximately P533.1 million.
The Class A Senior Notes and Class B Subordinated Notes is about P290 million and P243.1 million, respectively. The Class B Subordinated Notes will be paid after all Class A Senior Notes have been fully settled.
About half of the backing asset pool for NHMFC Bonds 2023 was extracted from the total socialized housing loan portfolio bought by NHMFC from HDMF in 2019—which was the universe of the fifth securitization transaction, BALAI Shelter.
The asset pool consists of 1,626 residential loans for low-cost and socialized housing units. Of the total portfolio, 517 loans or 32 percent underwent restructuring or condonation.
In terms of outstanding principal amounts, around 10 percent or P54.6 million of the asset pool was restructured or condoned. In line with the eligibility criteria, loans included in the asset pool were not more than six months in arrears as of cut-off date.
Credit enhancements enjoyed by the Class A Senior Notes include excess spread, subordination coverage from Class B Subordinated Notes, and access to accounts designed to cover cash shortfalls.
In particular, the P243.1 million Class B Subordinated Notes represent 84 percent coverage of the P290 million Class A Senior Notes. This substantial coverage provides ample protection for the senior notes against losses from the asset pool that can no longer be covered by the excess spread.
Furthermore, there are a total of 11 months’ worth of collections and expected payments to be stored in the various liquidity accounts of the transaction. This should protect the stability of the cash flows of the transaction, particularly given the still relatively high inflation and the challenging economic environment.
Historically, it has been observed that there were minimal prepayments in NHMFC’s residential loan portfolio. Prepayments are considered as a source of volatility for cash flows of an asset-backed security. Borrowers of the loans included in the asset pool tend to treat their loan amortizations as regular expenses which have to be paid.
It is also noted that the loans included in the asset pool have fixed interest rates, which ensures the stability of cash flows and spreads of the transaction, relative to a pool of loans with variable interest rates.
PhilRatings further notes that participants in the transaction are well-established institutions, which are seen as capable of performing their functions in relation to this transaction. The participants have also been involved with previous securitization transactions of NHMFC.