CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings, effective as of July 28, 2014, to La Hipotecaria Panamanian Mortgage Trust 2014-1 and La Hipotecaria Twelfth Mortgage-Backed Notes Trust:
La Hipotecaria Panamanian Mortgage Trust 2014-1
--$56.25 million class A-1 certificates 'AAAsf', Outlook Stable.
La Hipotecaria Twelfth Mortgage-Backed Notes Trust
--$68.25 million series A notes 'BBBsf', Outlook Stable.
Fitch has also assigned the following rating effective as of today:
La Hipotecaria Panamanian Mortgage Trust 2014-1
--$4.5 million class A-2 certificates 'BBBsf', Outlook Stable.
The issuances are ultimately backed by a pool of residential mortgages originated by Banco La Hipotecaria, S.A. (La Hipotecaria) to lower-middle-income borrowers in the Republic of Panama. The series 2014-1 certificates benefit from a financial guaranty from Overseas Private Investment Corporation (OPIC). Fitch's ratings address timely payment of interest on a monthly basis and ultimate payment of principal by legal final maturity in September 2043.
KEY RATING DRIVERS
OPIC Guaranty: The timely payment of interest and ultimate payment of principal of the class A-1 certificates are guaranteed by OPIC, a U.S. agency backed by the full faith and credit of the U.S. (rated 'AAA' with a Stable Outlook by Fitch); this allows the certificates to reach 'AAAsf'.
Credit Enhancement: The series A notes benefit from 9% credit enhancement (CE) in the form of subordinated notes, an interest reserve account equivalent to 1% of the balance of the series A notes, and excess spread.
Sequential Pay Structure: The series A notes benefit from a sequential pay structure, where the target CE level is senior to interest payments and to the target principal payments on the series B notes.
Low Historical Loss Levels: Historical vintage data on La Hipotecaria's Panamanian mortgage portfolio indicate gross loss (+180 days) of around 2.5%, low compared to other Latin American mortgage markets. Approximately 87% of the portfolio benefits from a payroll deduction mechanism, which helps mitigate willingness to pay risk and contributes to low default levels.
Subsidy Expiration and Floating-Rate Mortgages: Approximately 73.5% of the mortgage pool benefits from Panama's Preferential Treatment Law, whereby the government provides lenders a subsidy for originating mortgages below market interest rates for a definite period of 10 or 15 years. Fitch stresses the 2.5% gross default level to derive a base case frequency of foreclosure (FoF) that reflects the portfolio's exposure to subsidy expirations as well as increases in the reference rate.
La Hipotecaria as Originator and Servicer: La Hipotecaria has developed expertise in originating and servicing low- to middle-income borrowers. La Hipotecaria has originated 11 RMBS transactions since 1999. Fitch-rated transactions have performed well and in line with expectations.
Sovereign Macroeconomic Performance: Panama's high growth rates since 2004 are a result of policy continuity centered on the expansion of the Panama Canal and the positioning of the country as a regional logistics hub. Fitch rates Panama 'BBB' and its country ceiling 'A'.
RATING SENSITIVITIES
The ratings assigned to the series A notes and class A-2 certificates are sensitive to changes in the credit quality of Panama. In addition, severe increases in frequency of foreclosures, prepayments and/or decreases in recovery rates could lead to rating downgrades.
The rating assigned to the class A-1 certificates is sensitive to changes in the credit quality of the U.S. sovereign, as OPIC is an agency of the U.S.
TRANSACTION SUMMARY
La Hipotecaria transferred approximately $75 million of eligible mortgages originated in Panama to the Twelfth Mortgage-Backed Notes Trust (the Panamanian trust). The Panamanian trust issued $68.25 million in series A senior notes, $6 million in series B mezzanine notes, and $75 million in series C subordinate notes. Fitch rated the series A senior notes, which benefit from 9% CE in the form of subordination.
Approximately $60.75 million of the $68.25 million series A notes was transferred to a U.S. grantor trust (the LH Delaware trust). The U.S. trust issued $56.25 million in class A-1 certificates, which are pass-through certificates that benefit from a financial guaranty from OPIC. The U.S. trust also issued $4.5 million in class A-2 certificates, which are pass-through certificates that do not benefit from a financial guaranty.
La Hipotecaria began operations in Panama as a specialty mortgage financing company in May 1997 and became a fully licensed bank under Panamanian law in June 2010. Since inception, La Hipotecaria and its operating subsidiaries have successfully specialized in mortgage origination to low- to middle-income borrowers.
For more details on the transactions, see Fitch's new issue report 'La Hipotecaria Panamanian Mortgage Trust 2014-1' and related representations and warranties appendix available shortly on Fitch's website.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for RMBS in Latin America' (February 13, 2014);
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2014);
--'Criteria for Rating Securitizations in Emerging Markets' (June 18, 2014).
Applicable Criteria and Related Research:
Criteria for Rating Securitizations in Emerging Markets
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749927
Counterparty Criteria for Structured Finance and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821
Rating Criteria for RMBS in Latin America
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732815
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842454
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