December 27, 2017 / 5:35 PM / a year ago

Fitch Rates Bosphorus Financial Services Limited's Tranche 2017 Notes 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Bosphorus Financial Services Limited - Series 2017-A and -B here LONDON, December 27 (Fitch) Fitch Ratings has assigned Bosphorus Financial Services Limited's series 2017-A and -B notes 'BBB+' ratings with Stable Outlook. The ratings address the likelihood of timely payment of interest and principal. Fitch has also affirmed the outstanding 2012- C series and 2015-A, -B, -C and -D series at 'BBB+' with Stable Outlook, following the issue of the new series. Bosphorus Financial Services Limited is a future flow transaction of diversified payment rights (DPR) originated by Finansbank A.S. (BBB-/Stable/F3). DPRs are payment orders processed by banks and mainly reflect payments due on the export of goods and services, capital flows and personal remittances. Bosphorus Financial Services Limited has purchased all present and future DPRs denominated in dollars, euros and pounds from Finansbank, financed through issued notes that are secured on the DPRs. KEY RATING DRIVERS GCA Score Supports Rating: Fitch has a Going Concern Assessment (GCA) score of GC2 on Finansbank. This indicates Finansbank's importance to the Turkish banking system as the sixth largest privately owned bank in Turkey and also the parental support from Qatar National Bank (QNB; A+/Negative/F1). Finansbank had unconsolidated assets of USD28.8 billion as of end-December 2016, representing about 3.7% and 3.9% of the total system deposits and assets, respectively, according to the Banks Association of Turkey. Two Notch Uplift: The GCA score serves as a rating cap on future flow transactions. However, Fitch tempers the notching uplift from the originator's Local-Currency Long-Term Issuer Default Rating (LC IDR) when it is an investment-grade originator, or the bank's rating benefits from parent support. Fitch has applied two-notch uplift on Bosphorus DPR's ratings from the bank's LC IDR of 'BBB-'. Weakening Coverage Levels: Fitch expects monthly debt service coverage ratios (DSCR) for the programme to be 41x after the new issue. This is markedly weaker than what would have been seen before the issuance and is now in the low range of peer programmes. This coverage incorporates Fitch's interest rate stresses and is based on the average monthly offshore flows processed through designated depositary banks (DDBs) of the past 12 months up to October 2017. Fitch tested the sustainability of coverage under various scenarios, including FX stresses and a reduction in payment orders, based on the top 20 beneficiary concentration. The resultant DSCRs are above the key trigger levels set out in the transaction documents. Moderate Programme Size: Fitch estimates the new series, in combination with the outstanding notes, represents about 3.8% of Finansbank's total interest-bearing liabilities and 9.8% of interest-bearing liabilities when customer deposits are excluded. As a percentage of long-term funding, the DPR programme represents approximately 20.5%. The current leverage is toward the medium-to-higher end compared with peer programmes. Should the size of the issuance increase further, this would likely put pressure on the ratings of the notes. VARIATIONS FROM CRITERIA None RATING SENSITIVITIES The most significant variables affecting the rating of the transaction are the credit quality of the bank, its GCA score, and the sovereign rating. Although coverage levels are a key input as well, the DSCRs have been sufficient, and therefore the transaction is expected to be able to withstand a significant decline in cash flows without affecting the ratings. Additionally, the 'AA/F1+' ratings of Bank of New York Mellon (BONY), as the issuer's account bank, may constrain the ratings of the DPR notes, if BONY is downgraded below the then ratings of the DPR notes with no remedial action taken. Another important consideration that might lead to rating action is the level of future flow debt as a percentage of the bank's overall liability profile. This is factored into Fitch's analysis to determine the maximum notching differential allowed, given the GCA score. The outstanding note balance of the issuer relative to Finansbank's liability profile is currently deemed fairly high relative to peers, especially when considering the outstanding balance as a percentage of long-term funding. Although Fitch considers the current size of the future flow debt as reasonable, further issuance would likely put pressure on the rating of the notes. Nevertheless, any change in any of these variables would be analysed to assess the possible impact on the transaction's ratings. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the DPR programme. There were no findings that were material to this analysis. Fitch has neither requested any third-party assessment of the information about DPR flows nor conducted a review of origination files because there is no existing asset portfolio to assess in future flow transactions. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION The information below was used in the analysis. -Investor reports and information provided by Finansbank as at November 2017. Contacts: Primary Analyst Paul Varty Analyst +44 20 3530 1770 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Joanne Wong Senior Director +44 20 3530 1077 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Fitch’s Foreign-Currency Stress Assumptions for Residual Foreign-Exchange Exposures in Covered Bonds and Structured Finance – Excel File (pub. 30 Oct 2017) here Future Flow Securitization Rating Criteria (pub. 13 Sep 2017) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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