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GUINCHO FINANCE — Moody's upgrades ratings in Portuguese NPL transaction GUINCHO FINANCE – Yahoo Finance

Rating Action: Moody’s upgrades ratings in Portuguese NPL transaction GUINCHO FINANCEGlobal Credit Research – 21 Mar 2022Madrid, March 21, 2022 — Moody’s Investors Service, (“Moody’s”) has today upgraded the ratings of two notes in GUINCHO FINANCE (“GUINCHO”). The rating action reflects better than expected collateral performance which translates into an increased credit enhancement for the affected notes with a significant reduction in the advance rate in the last period…..EUR84M Class A Notes, Upgraded to Baa1 (sf); previously on Dec 3, 2018 Definitive Rating Assigned Baa3 (sf)….EUR14M Class B Notes, Upgraded to Ba3 (sf); previously on Dec 3, 2018 Definitive Rating Assigned Caa3 (sf)Maximum achievable rating is Aa2 (sf) for structured finance transactions in Portugal, driven by the corresponding local currency country ceiling of the country.RATINGS RATIONALEThe rating action is prompted by better than expected collateral performance which translates into an increased credit enhancement for the affected notes.Better than expected collateral performanceThe GUINCHO transaction is overperforming its original business plan (by around 4% on gross collections and 21.5% net of legal and procedural costs and deal expenses but gross of servicers’ fees) as well as Moody’s expectations at closing which were lower than the original business plan.The addition of collections to date and servicers’ updated projections in October 2021 business plans are higher than their original projections. 2021 collections were higher than 2020, mainly driven by an EUR 9.8 million loan sales in HG PT Unipessoal, Lda (“Hipoges”) portfolio. Gross collections up to October 2021 as a percentage of the original Gross Book Value (“GBV”) stood at around 16% and NPV Cumulative Profitability Ratio (which compares the sum of the net present values of gross collections net of Receivables Recovery Expenses received for Exhausted Debt Relationships compared to the expected in the original business plan) remains at healthy levels of 158%.In terms of underlying portfolio, the reported GBV stood at EUR 411.33 million as of October 2021 down from EUR 480.75 million at closing. Portfolio is serviced by Whitestar Asset Solutions, S.A. (which initially serviced secured loans to individuals and took over servicing of unsecured loans from Proteus Asset Management, Unipessoal Lda. (“Altamira”) on May 2021) and Hipoges.Moody’s notes that class B deferral trigger has not been hit up to date.NPL transactions’ cash flows depend on the timing and amount of collections. Due to the current economic environment, Moody’s has considered additional stresses in its analysis, including a 6 -month delay in the recovery timing.Increase in Available Credit EnhancementThe advance rate on Class A Notes, the ratio between Class A Notes’ balance and the outstanding GBV for positions still being worked on by the servicer, decreased to 5.44% as of November 2021 from 17.47% at closing. Similarly advance rate for Class B Notes (the ratio between the Class A and B Notes’ balance and the outstanding GBV) stood at 8.84% as of the same date down from 20.38% at closing. Most of the reduction of the advance rates took place in the last two periods and in particular in the last period – advance rates stood at 11.48% and 14.79% as of November 2020 and at 9.31% and 12.59% as of May 2021 for Class A notes and Class B notes respectively. A lower advance rate translates into higher protection against credit losses for the Notes. Indeed when we compare servicer’s expected collections net of costs and fees from November 2021 onwards to the balance of the Notes, the ratio is over 2x for class A notes. Net collections are applied according to the transaction’s priority of payments with costs and interests ranking senior to class A notes, but this is a strong coverage.Class A balance is now at 26.63% of the balance when we rated the transaction.Class B notes do not benefit from the cash reserve in the transaction. Moody’s notes that the unpaid interests on B notes are deferrable with accruing interest on interest. The rating of the notes takes into consideration potential future liquidity constraints.Counterparty ExposureToday’s rating action took into consideration the Notes’ exposure to relevant counterparties, such as servicer, or account banks.Moody’s considered how the liquidity available in the transaction and other mitigants support continuity of Note payments in case of servicer default. The ratings of the class A Notes are constrained by operational risk. The transaction does not include a back-up servicer nor a back-up servicer facilitator. Moody’s considers that the liquidity support provided to the rated Notes via the cash reserve may be used in case of underperformance of the special servicer, given the nature of the assets. This, in conjunction with the lack of a back-up servicer, means that continuity of Note payments could be affected in case of servicer disruption.The principal methodology used in these ratings was “Non-Performing and Re-Performing Loan Securitizations Methodology” published in April 2020 and available at Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:Factors or circumstances that could lead to an upgrade of the ratings include: (i) the recovery process of the non-performing loans producing significantly higher cash-flows in a shorter time frame than expected; (ii) improvements in the credit quality of the transaction counterparties; and (iii) a decrease in sovereign risk.Factors or circumstances that could lead to a downgrade of the ratings include: (i) significantly lower or slower cash-flows generated from the recovery process on the non-performing loans; (ii) deterioration in the credit quality of the transaction counterparties; and (iii) increase in sovereign risk.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody’s determines based on its assessment of the collateral characteristics. Moody’s then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody’s weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Maria Turbica Manrique VP – Senior Credit Officer Structured Finance Group Moody’s Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid, 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Michelangelo Margaria Senior Vice President/Manager Structured Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody’s Investors Service Espana, S.A. 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