Fitch Ratings has downgraded Trust 18247-6 Credit Line's long-term global scale rating to 'CCCsf' from 'BBB+sf', and national scale rating to 'CCC(mex)vra' from 'AAA(mex)vra', and has removed the Rating Watch Negative.

The credit line is provided by Banco Santander Mexico, S.A., Institucion de Banca Multiple (Santander Mexico) as lender to Banco Nacional de Mexico, S.A., Institucion de Banca Multiple (Citibanamex) as trustee of Fideicomiso Irrevocable de Administracion y Fuente de Pago con Derechos de Reversion Numero 18247-6 (UFN F18247-6).

RATING ACTIONS

Entity / Debt

Rating

Prior

UFN F18247-6 (2019)

UFN F18247-6 (2019)

LT

CCCsf

Downgrade

BBB+sf

UFN F18247-6 (2019)

Natl LT

CCC(mex)vra

Downgrade

AAA(mex)vra

Page

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VIEW ADDITIONAL RATING DETAILS

The downgrade reflects enduring collection delay that has impacted the transaction's cashflow dynamics and collateral credit performance. In a previous commentary, Fitch anticipated a heightened probability of a potential disruption of Unifin Financiera S.A.B. de C.V.'s (Unifin; rating withdrawn; previous rating 'D') servicing and reporting activities, which currently appear as recurrent. The portfolio's performance has greatly deteriorated since August 2022, as Unifin has not replaced defaulted loans.

The poor performance could be related to delinquencies, information inconsistencies, remaining collections deposited into Unifin's accounts, impaired servicing or cash transfer delays from the servicer. However, Fitch lacks the information needed to determine the specific impact of these or other factors, and relies on information it receives from Unifin to clarify and define reasonable assumptions for concentrations, expected defaults and recoveries.

Transaction Summary

The transaction consists of a securitization of a pool of equipment lease contracts originated and serviced by Unifin. The structure is a credit facility provided to an SPV in the form of a trust. Unifin was the settlor and the collateral includes a pool of equipment lease contracts and, to a lesser extent, cash and convertible short-term securities investments. The credit facility UFN F18247-6 was provided by Banco Santander Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero Santander Mexico (Santander, rated 'BBB+'/Stable and 'AAA(mex)'/Stable).

KEY RATING DRIVERS

Sustained Exposure to Commingling Risk: Although collections can be deposited in the Master Collection Trust (MCT), the majority of collections are received in UNIFIN accounts, which are then transferred to the MCT within two days, according to the governing documents. Accelerated portfolio deterioration and declining collection levels suggest an ongoing delay in the collection process. Despite Santander's efforts to notify borrowers to deposit directly into the MCT, collections continue to be deposited into Unifin's accounts, exposing the transaction to commingling risk.

Servicing and Operational Disruption: Fitch believes the asset pool has standard characteristics and enough market participants to replace servicing activities for a suitable transition process. However, recent 'concurso mercantil' filed by the entity, specifically prevent the SPV from substituting the primary servicer, enhancing the likely reliance on Unifin for continued asset pool servicing. The transaction's reporting delays, information inconsistencies and impaired servicing has pressured performance, clouding real credit risk or concentration exposures, and mostly exhibiting operational risk linked to a distressed company.

Overcollateralization Impacted by Default Metrics: The transaction's current portfolio levels have decreased over the last three months and since the interruption of substitution or new transfers of leases to the SPV. In its previous commentary and considering information provided by the company, Fitch considered 15% of substitutions as defaults and the rest were due to rebalancing of assets to address concentration limits (industry, geographic or obligor) between three different SF transactions. However, after the termination of revolving period, default rates of the resulting static portfolio have reached 17.65% as of October 2022 (vs initial BCDR of 6%). Accordingly, OC was 2.49% below target level (20.6%).

Insufficient OC to Cover Stressed Loss or Concentrations: Although the rating actions are driven by heightened operational risk, Fitch estimated the maximum levels of gross loss that the transaction could withstand. Considering the current portfolio and the credit line's outstanding balance reported at the end of October 2022, the levels obtained would barely cover the reported loss. However, Fitch perceives deficiencies in the transaction reports that may represent omissions that reduce reliance on estimates of losses, which could lead to errors in the credit risk assessment.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Major delinquency levels, OC reduction or lack of liquidity with further pressure towards transaction default could lead to a downgrade.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Fitch will continue monitoring the transactions through monthly reports and surveillance with the Master Servicer and lenders. If there are improvements on collection transfers from Unifin, obligors depositing in SPV's accounts and a decrease on default metrics followed by an increase in credit protection, an upgrade could be evaluated.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

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