Rating Action: Moody's assigns Aaa (sf) rating to GNMAG Asset Backed Securitizations Trust, Series 2020-1 Class A Regular Certificates
Global Credit Research - 16 Dec 2020
New York, December 16, 2020 -- Moody's Investors Service (Moody's) has assigned Aaa (sf) to the proposed $100 million of Agency Security Pass-Through Certificates, Series 2020-1 Class A Regular Certificates (the 2020-1 Certificates) to be issued by GNMAG Asset Backed Securitizations Trust, Series 2020-1 (the Trust). GNMAG Asset Backed Securitizations, LLC is the depositor. GMTH Holdings, LLC is the sponsor.
The Aaa (sf) rating reflects the high quality Ginnie Mae II mortgage backed security (GNMA MBS) collateral and the transaction's legal and structural provisions.
Ginnie Mae, a wholly-owned corporate instrumentality of the United States of America (Aaa; outlook stable), guarantees the full and timely payment of principal and interest on GNMA MBS. Ginnie Mae's obligation is backed by the full faith and credit of the U.S. government. Payments from the underlying GNMA MBS collateral received by the Trust, net of trust expenses, will be passed through to the Certificate holders within five (5) days, by the Trustee, Citibank, N.A. (Aa3/P-1).
We regard the coronavirus (COVID-19) outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. We do not see any material immediate credit risks for the Trust. However, the situation surrounding Coronavirus is rapidly evolving and the longer-term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of the Trust changes, we will update the rating at that time.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
- Downgrade of the US government rating
The 2020-1 Certificates will be issued by the Trust for the securitization of a portfolio of GNMA MBS. The 2020-1 Certificates issued by the Trust represent an undivided interest in the GNMA MBS receivables, net of fees and expenses of the Trust.
USE OF PROCEEDS
Proceeds from the Certificates will be used to (1) acquire two GNMA MBS and (2) pay costs of issuance including upfront fees of the trustee, the underwriters and the asset representations reviewer.
- High quality GNMA MBS collateral
- Payments from the underlying GNMA MBS collateral received by the Trust, net of trust expenses (if any), will be passed through to the certificate holders within five (5) days
- While the regular fees and expenses of the Trust are expected to be paid up front around closing, there would be unexpected third-party expenses if a deficiency event occurs, which will exacerbate the deficiency and result in a steeper downgrade
The 2020-1 Certificates represent undivided interest in the underlying GNMA MBS collateral in the Trust. We expect the collateral to be 100% GNMA II MBS. GNMA II MBS pays on the 20th of the month (or the next business day if the 20th is not one) and the Trustee will pass through principal repayment and prepayments plus interest (net of Trust expenses, if any) received by the Trust to the Certificate holders on the 25th of the month (or the next business day if the 25th is not one).
GNMA MBS is the highest quality collateral for the certificate holders because they are guaranteed as to the full and timely payments of principal and interest by Ginnie Mae, regardless of the performance of the underlying mortgage loans. As a result, certificate holders will be protected from cash flow disruptions and losses associated with defaults of the mortgages underlying any GNMA MBS.
Fees and Expenses: post-closing fees will only be of unexpected nature
After the closing, the only fees and expenses will be of unexpected nature and only upon occurrence of a Deficiency Event, defined as "inability of the Trustee to distribute to holders of one or more regular classes of Certificate in accordance with the terms of the Trust Agreement".
Unexpected fees will exacerbate the deficiency in the Trust and result in a steeper downgrade because net revenues received monthly by the Trust would have been fully passed through to the certificate holders, leaving no funds available in the Trust to pay unexpected fees upon a Deficiency Event. The annual expenses of the Trust, if incurred, are capped at $500,000.
There are two types of unexpected expenses contemplated by the Trust Agreement.
The first is accountants' fee, capped at $5,000. In the event there is a Deficiency Event, the Trustee is required to notify the accountants and request a review of future cash flow sufficiency of the Trust.
The second is a fee (between $15,000 to $30,000) payable to the asset representation reviewer if a new report is ordered. If a distribution of principal and interest is 30 days or more delinquent, 5% or more of the current Certificate holders may demand a vote for a new asset representation review. If majority of the Certificate holders vote in favor, there will be a second fee payable to the asset representation reviewer for the new review ordered. The Trust Agreement requires a third-party independent accounting firm and an asset representation reviewing firm for the life of the Trust, to be engaged at closing.
Sale of Trust assets upon Deficiency Event
However, in the event of deficiency, Certificate holders can opt for the sale of Trust funds as opposed to automatically incurring additional third-party expenses. Holders of all of the outstanding regular Certificates outstanding may direct the Trustee, in writing, to sell the assets and collapse the Trust after the accountants make an insufficiency determination.
During the short 5-day period between when the Trustee receives the GNMA MBS payments and pays the Certificate holders, the funds received will be held in an Eligible Account (defined as a non-interest-bearing deposit account with a bank with a short-term rating of P-1 from Moody's). Amounts held in the Trust account will not be invested.
The Trust account is required to be maintained as an Eligible Account at all times. If the P-1 rated bank holding the trust assets is downgraded, the Trustee is required to move the account to another properly rated account with a different bank. As long as Citibank, N.A. (Aa3/P-1) is the trustee and maintains its P-1 rating, the Trust account will be an Eligible Account.
The principal methodology used in this rating was US Stand-alone Housing Bond Programs Secured by Credit-Enhanced Mortgages Methodology published in and July 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1142797. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For 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: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1257739
Moody's did not use any models, or loss or cash flow analysis, in its analysis.
Moody's did not use any stress scenario simulations in its analysis.
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.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU 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.
Ping Hsieh VP - Senior Credit Officer Public Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Florence Zeman Associate Managing Director Public Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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