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Fitch Upgrades Nordax Nordic 2 AB at 'AA+sf', Outlook Stable.

London: Fitch Ratings has upgraded Nordax Nordic 2 AB's variable funding notes (VFNs) as follows:

NOK VFN, due November 2040: upgraded at 'AA+sf' from 'AAsf'; Outlook Stable

EUR VFN, due November 2041: upgraded to 'AA+sf' from 'AAsf'; Outlook Stable

The upgrade follows revised asset assumptions and resulting upgrade of the Finnish part of the facility, which due to the rating link (see below) had been constraining the achievable rating on the Norwegian VFN. It also incorporates the amendments to the transaction effective on the November 2018 interest payment date, including the extension of the revolving period for the EUR-denominated VFN (the Finnish VFN) by one year to November 2019. The revolving period of the NOK-denominated VFN (the Norwegian VFN) will not be extended, and hence will start its amortisation.

The transaction is a warehouse facility first rated by Fitch in 2015, which securitises two separate pools of unsecured consumer loans granted to Norwegian and Finnish individuals by Nordax Bank AB (publ) (Nordax, also seller and servicer). Loans extended to Finnish obligors can be funded against by drawing on the Finnish VFN up to a maximum commitment of EUR135 million. Loans to Norwegian obligors can be funded against by drawing on the Norwegian VFN.

The two VFNs are linked through cross-default provisions and a link between the principal waterfalls, but operate on a standalone basis.


Asset Assumptions Revised

The asset pools consist of unsecured consumer loans, which have historically experienced high default rates. This risk is mitigated by high recovery rates and by the strong yield generated by the portfolios. We have set separate asset assumptions for the two countries.

Considering satisfactory observed performance of Nordax's Finnish originations through direct mailing, Fitch has reduced its weighted average (WA) default base case for the Finnish portfolio to 22.5% (from 25%), with a stress of 2.6x at 'AA+sf' maintained. For the Norwegian portfolio, Fitch kept its weighted average (WA) default base case unchanged at 15% with a stress of 3.2x at 'AA+sf' (down from 3.3x). The minor default multiple reduction for the Norwegian VFN reflects additional data history only; based on a worse-than-expected performance of recent vintages Fitch decided against further lowering this stress despite the upcoming end to the revolving period.

The agency has maintained a WA recovery assumption of 46% for the Norwegian pool, stressed with a 40% haircut at 'AAsf'. For the Finnish portfolio, the WA recovery assumption is 56.5% stressed with a haircut of 43.3% at 'AA+sf' (reduced from 47.7%).

Fitch has also increased its prepayment assumptions, to 17% (from 15%) and to 12% (from 10%) for the Norwegian and Finnish portfolios, respectively.

Extended Revolving Period Risks Mitigated

The revolving period has been extended by one year to November 2019 for the Finnish VFN only. Fitch has considered the risk of portfolio migration and performance deterioration throughout this period and believes that the combination of early amortisation triggers and concentration limits in place sufficiently mitigates these risks. The early amortisation triggers include, among others, delinquency thresholds, which in the agency's view are able to provide adequate protection against asset deterioration, also considering the relatively short revolving period. The Norwegian VFN will start its amortisation on the payment date falling on November 2018.

Cross-Default Leads to Rating Link

As a default under the Finnish VFN leads to an event of default on the Norwegian VFN, and vice versa, the agency views the ratings of the notes as being linked. Both VFNs are therefore rated at the lower rating achievable among the two, which is that of the Finnish VFN at 'AA+sf'. The start of the amortisation for the Norwegian VFN does not impact the ratings.

Operational Risks Mitigated

Emric Operations AB as back up servicer has committed to take over the servicing of the pools within 20 business days upon servicer termination. In addition, Citigroup N.A is contracted to take over the responsibility for the cash management functions until a successor cash manager is appointed. A liquidity reserve is also in place, which should be sufficient to cover one month's payment interruption. In Fitch's opinion, these factors adequately mitigate servicing discontinuity and payment interruption risk. In addition, borrowers have been notified to pay directly into the issuer's account, which mitigates commingling risk within the transaction.


The issuer is incorporated in Sweden as a special purpose vehicle with limited liability, wholly owned by Nordax. The non-orphaned issuer is unusual compared with most European transactions. However, Fitch has received a legal opinion confirming that an insolvency of Nordax will not cause the issuer to be consolidated or forced into insolvency. Fitch's confidence is reinforced by the successful use of this type of SPV structure in previous Swedish securitisations.


Increase in default assumption (Norwegian VFN/Finnish VFN)

Current ratings: 'AA+sf'/'AA+sf'

Increase defaults by 10%: 'AA+sf'/ 'AAsf'

Increase defaults by 25%: 'AA+sf'/ 'AA-sf'

Increase defaults by 50%: 'AAsf'/ 'Asf'

Increase in recovery assumption (Norwegian VFN/Finnish VFN)

Current ratings: AA+sf/AA+sf

Decrease recoveries by 10%: 'AA+sf'/ 'AA+sf'

Decrease recoveries by 25%: 'AA+sf'/ 'AAsf'

Decrease recoveries by 50%: 'AA+sf'/ 'AA-sf'

Increase in default and decreased recovery assumption (Norwegian VFN/Finnish VFN)

Current ratings: 'AA+sf'/ 'AA+sf'

Increase defaults and decrease in recoveries by 10%: 'AA+sf'/ 'AAsf'

Increase defaults and decrease in recoveries by 25%: 'AA+sf'/ 'A+sf'

Increase defaults and decrease in recoveries by 50%: 'AA-sf'/ 'BBB+sf'


Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.


Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Prior to the transactions closing, Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis.

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.


The information below was used in the analysis.

-Transaction reporting provided by Nordax as at September 2018.

-Discussions/updates from Nordax dated November 2018.

-Updated performance data provided by Nordax as of 3Q18.

-Amended transaction documents signed on 22 November 2018.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Jan 25, 2019
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