RPT-Fitch upgrades Paratus AMC Espana's ABS special servicer rating

Tue Mar 18, 2014 9:41am EDT

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March 18 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has upgraded Paratus AMC Espana SA's (Paratus) Spanish asset-backed securities (ABS) Special Servicer Rating to 'ABSS2-'from 'ABSS3+' and affirmed its Spanish Residential Special Servicer Rating at 'RSS2-'.

At the same time, the agency has assigned a Spanish ABS Primary Servicer Rating of 'ABPS3+' and a Spanish Residential Primary Servicer Rating at 'RPS3'.

The rating actions reflect the company's continued development. A new ABS third party client should help underpin the company's ability to establish itself in what is still a fairly new jurisdiction for the group. Following a period of significant growth in 2012 the business has now stabilised, allowing further development of the servicing processes and the control environment.

Paratus has implemented a number of important technology enhancements since December 2012; with continued developments to the servicing platform (FAMS) and the integration of the dialler system. These developments provide greater control and efficiencies around borrower contact strategies, which benefits the servicing of the ABS portfolios in particular. Fitch considers the servicing platform a key strength of the company.

The portfolios serviced continue to be largely non-performing, limiting Paratus's ability to demonstrate early arrears management expertise - which Fitch considers an important aspect of primary servicing. However, Fitch recognises that the group continues to strengthen its experience and resources available in this area and has no reservations regarding the company's capabilities.

Fitch maintains a positive view of Paratus's use of a wide range of resolution options, including forbearance and forgiveness agreements, according to asset type and borrower's financial position, with the asset management function divided into specialised teams.

Paratus continues to achieve a sound level of resolution of secured loans, adapting servicing teams and practices as the portfolio matures. The unsecured consumer and SME portfolios were boarded in 1Q12 and 4Q12. The company has achieved high contact rates and an increased number of resolutions and arrangements as it works through these portfolios.

The ratings also take into consideration limited audit and quality assurance activity. External audit activity is limited in scope and there is no internal audit in place. This is partly mitigated by the modest size of the company, which allows for significant direct monitoring. A more formal quality assurance programme is now in place; however, this was in its infancy at the time of review and the agency is unable yet to assess its effectiveness.

As at 30 September 2013, Paratus managed a non-performing loan portfolio with a gross book value (GBV) of EUR1.7bn (2012: just under EUR1.6bn), representing 108,478 loans. The portfolio comprised secured mortgage loans (11% by value), unsecured consumer loans (70%) and small- to medium-sized business loans (19%). In addition, Paratus is also engaged as special servicer by Spanish bank NCG Banco SA. The agreement in place provides Paratus with a flow of loans - at various stages of arrears - and so the portfolio is of a revolving nature. As at 30 September 2013 the portfolio represented 25,183 unsecured consumer loans with a value of over EUR689m.

Fitch employed its global servicer rating criteria in analysing the servicer's operations and financial condition.

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