RATING DRIVERS

Supporting Factors

• Good financial performance despite a challenging operating environment
• Strong capitalization, well above that of its peers
• Good liquidity supported by a diversified funding base
• Prudent risk management strategies

Constraining Factors

• Credit loan portfolio quality adversely impacted by the COVID-19 pandemic
• Prevailing economic conditions could negatively impact financial performance

Rating Sensitivity Factors

Factors that could, individually, or collectively lead to an improvement in the ratings and/or outlook include:

• An improvement in the credit rating of the sovereign over the next 12-15 months
• Improvement in the Bank’s interest spread to > 3%, sustained over a 3-year period
• NPLs/Gross loans improve to 5% or below over the next 12-15 months

Factors that could, individually, or collectively lead to a lowering of the ratings and/or outlook include:

• A deterioration in the credit rating of the sovereign over the next 12-15 months
• A sustained increase in the cost of funds by 100 bps or greater over the next 12-15 months
• NPL’s >8% over the next 12-15 months
• A deterioration of the total earning assets/ total interest-bearing liabilities ratio to < 1 time

COMPANY BACKGROUND

Home Mortgage Bank (HMB) was established in the Republic of Trinidad and Tobago (T&T) under the Home Mortgage Bank Act of 1985 and commenced business in October 1986. HMB is 100% owned by the National Insurance Board of Trinidad and Tobago (NIBTT)^[1].

HMB’s principal business activities include the trading of residential mortgages originated by primary mortgage lenders^[2] and commercial lending. The Bank’s loan product offerings include loans for land acquisition for commercial purposes, bridge financing, commercial mortgage loans, project financing, and Public/Private Sector Partnerships (PPP)^[3]. Its Mortgage-Backed securities include Collateralized Mortgage Obligations (CMOs), the Mortgage Participation Fund (MPF) and the Samaan Tree Fund (STF). The mutual funds established by HMB are backed by a segregated pool of residential mortgages. The Bank also issues taxable and tax-exempt Bonds. The Bank is a non-deposit taking institution and derives most of its funding from the issuance of medium-term and long-term bonds; additional funding is also provided through inflows from the MPF, STF and the CMOs. HMB currently has three 100%-owned subsidiaries, Tobago Fairways Villas Limited, Tobago Plantation House Limited, and Tobago Fairways Management Limited. These subsidiaries are engaged primarily in real estate development.

On August 6, 2021, the Board of the National Insurance Board of Trinidad and Tobago (“NIBTT”), as well as the Boards of the Trinidad and Tobago Mortgage Finance Company Limited (“TTMF”) and Home Mortgage Bank (“HMB”) formally approved the merger of TTMF and HMB. A team of advisors led by PricewaterhouseCoopers Advisory Services Limited (“PwC”) is providing implementation support for the merger. The approved method for the merger is a Distribution in Specie, whereby all assets and liabilities of the liquidated HMB will be transferred to TTMF.

^[1] Previously 0.6% of HMB’s shares were held by British American Insurance Company (Trinidad) Limited, but NIBTT acquired these residual shares in 2017.

^[2] Include the local commercial banks, non-bank mortgage institutions and credit unions.

^[3] For 2019, the portfolio comprised project financing, commercial facilities for land development and construction of multi and single-family homes for re-sale. In addition, to their primary commercial mortgage portfolio, HMB continues to purchase secondary mortgages from TTMF.

Analytical Contacts:

Nadia Sanchez

Tel: 1-868-627-8879 Ext. 229

E-mail: nsanchez@caricris.com

Anelia Oudit

Tel: 1-868-627-8879 Ext. 226

Mobile: 1-868-487-8364

E-mail: aoudit@caricris.com

Website: www.caricris.com

Email: info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable.  However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.  No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval.  CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

CariCRIS lowers its corporate credit ratings for Home Mortgage Bank

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CariCRIS reaffirms ‘high creditworthiness’ ratings of the NIF’s TT $4.0 billion debt issue

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RATING DRIVERS

Supporting Factors

• High asset quality of the NIF’s underlying assets
• Cash flow adequacy though down in 2020 continues to be supported by stable investment income
• Likelihood of support from the GORTT if needed, notwithstanding declining economic activity

 Constraining Factors

• NIF’s cash flows are discretionary and high in concentration risk
• Refinancing Risk applies, given the bond’s structure

Rating Sensitivity Factors:

Factors that could, individually or collectively, lead to an improvement in the ratings and/or outlook include:

• Improvement in the credit risk profile of the GORTT
• Improvement in the credit risk profiles of TGU and RFHL

Factors that could, individually or collectively, lead to a lowering of the ratings and/or outlook include:

• A further deterioration in the credit risk profile of the GORTT over the next 12 months
• A deterioration in the cash flow adequacy ratio to less than 1 time
• A deterioration in the credit risk profiles of TGU and RFHL
• Breach of any covenants of the bond
• An unfavourable capital market environment in T&T given the increased likelihood that Series A (TT $1.2 billion) would need to be refinanced in 2023.

COMPANY BACKGROUND

The National Investment Fund Holding Company Limited (NIF or the Company) is a special purpose investment company created by the Government of the Republic of Trinidad and Tobago (GORTT) to monetize the Government’s assets held in the form of shares of various corporate entities in Trinidad and Tobago (T&T). The NIF issued a bond in the amount of TT $4.0 billion consisting of 3 tranches as follows:

1. Series A – TT $1.2 billion with a tenor of 5 years at a fixed rate of 4.5%
2. Series B – TT $1.6 billion with a tenor of 12 years at a fixed rate of 5.7%
3. Series C – TT $1.2 billion with a tenor of 20 years at a fixed rate of 6.6%

The bond, which was issued in August 2018, is tax free for investors and is structured to remit semi-annual coupon payments. The principal for each tranche will be repaid in the form of a bullet payment upon the maturity of the respective tranche, with provision for portions of Series A and Series B to be refinanced for a further period of 5 years each. The bond’s structure and refinancing element were designed to meet the domestic market’s high preference for 5-year paper. The bond is secured by a debenture on the shares of the companies owned by the NIF, with a total value of TT $9.3 billion as at July 2021 (Table 1), up from TT $7.9 billion as at the date of issue (August 2018)^[1].

Table 1

NIF Underlying Assets and Respective Values

The NIF’s income consists primarily of dividends from its underlying assets and is the primary source from which the interest and principal repayments on the bond will be made. A sinking fund was established to accumulate funds that would be applied toward principal repayment.

^[1] Based on Trinidad and Tobago Stock Exchange Share prices for RFHL, AHL, OCM and WITCO as at August 8, 2018.  TGU’s valuation was completed by Duff and Phelps in July 2018.

Analytical Contacts:

Megan Dass

Tel: 1-868-627-8879 Ext. 239

E-mail: mdass@caricris.com

Keith Hamlet

Tel: 1-868-627-8879 Ext. 244

Cell: 1-868-487-8356

E-mail: khamlet@caricris.com

Website: www.caricris.com

E-mail: info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable.  However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.  No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval.  CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

CariCRIS lowers the corporate credit ratings for Trinidad and Tobago Mortgage Finance Company Limited

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RATING DRIVERS

Supporting Factors

• Moderate market position in T&T’s real estate mortgage market, supported by TTMF’s crucial role in the implementation of GORTT’s national housing policy
• Comfortable capitalization, reflected in high capital adequacy and good capital coverage of total assets
• Continued good financial performance in 2020 despite a fall in profitability

Constraining Factors

• Asset quality adversely impacted by the COVID-19 pandemic
• Asset/liability mismatch increases exposure to potential liquidity risks given high reliance on debt financing
• Lack of geographic diversity in TTMF’s revenue and funding exposes the company to significant sovereign risk

Rating Sensitivity Factors

Factors that could, individually, or collectively lead to an improvement in the ratings and/or outlook include:

• An improvement in the credit rating of the sovereign over the next 12-15 months
• The advancement of the proposed merger over the next 12 months which will lower funding costs and introduce new products
• Successful completion of housing projects over the next 12 months which should grow TTMF’s subsidized mortgage portfolio

Factors that could, individually, or collectively lead to a lowering of the ratings and/or outlook include:

• A deterioration in the credit rating of the sovereign over the next 12-15 months
• A rise in the cost to income ratio to 55% or greater
• A sustained increase in interest rates by 100 basis points or greater over the next 12 months, resulting in increased debt funding costs
• A material reduction (50% or greater) in or complete withdrawal of subsidized funding from the GORTT
• NPLs/Gross loans greater than 8% for 2 consecutive years

COMPANY BACKGROUND

Trinidad and Tobago Mortgage Finance Company Limited (TTMF) was incorporated under the Companies Act of Trinidad and Tobago on December 3, 1965. Its shareholders are the Government of the Republic of Trinidad and Tobago (GORTT) and the National Insurance Board of Trinidad and Tobago (NIBTT), with shareholdings of 49% and 51% respectively. TTMF is not a licensed deposit-taking institution and relies primarily on bonds to fund its lending operations.

TTMF was formed to fulfil the GORTT’s mandate of providing affordable residential mortgage financing to low to middle-income households in Trinidad and Tobago (T&T). It is the lead vehicle for mortgage financing under the GORTT’s Affordable Housing Finance Programme (2% and 5% Mortgage Programme). It is also a key part of the State’s housing business model in which the Trinidad and Tobago Housing Development Corporation (HDC) constructs the houses, and TTMF provides the mortgage financing. Although the HDC refers potential homeowners to the TTMF, they can obtain financing from other institutions. TTMF widened its target market several years ago to include all persons interested in residential mortgage financing. As such, the company’s product range now includes subsidized and open market residential mortgage loans as well as home equity loans with tenors of up to 30 years at stable interest rates, currently ranging between 2% and 6% per annum^[1].

In 2014, the GORTT approved a merger to create an institution conceptualized to leverage on synergies between TTMF and Home Mortgage Bank (HMB).  In 2016, a Memorandum of Understanding (MOU) was signed between the TTMF and HMB, which allows both companies to derive benefits from a close corporate alliance while maintaining the integrity and independence of both companies.  Under the terms of the MOU, HMB is required to develop appropriate products and markets for the sale of securitised mortgage products to provide consistent sources of low-cost long-term financing to TTMF, by way of an agreed programme of mortgage purchases.  Following the completion of a cost benefit assessment earlier in 2021 by PricewaterhouseCoopers Advisory Services Limited (“PwC”) on the type of merger to be pursued, approval to commence the merger of both entities was granted by the Minister of Finance.  The approved method for the merger is a Distribution in Specie, whereby all assets and liabilities of the liquidated HMB will be transferred to TTMF. 

[1]eives a Government subsidy for its 2% and 5% mortgage rates, through which qualifying citizens can benefit from subsidized interest rates.

Analytical Contacts:

Jeffrey James

Tel: 1-868-627-8879 Ext. 236

E-mail: jjames@caricris.com

Anelia Oudit

Tel: 1-868-627-8879 Ext. 226

Mobile: 1-868-487-8364

E-mail: aoudit@caricris.com

Website: www.caricris.com

Email: info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable.  However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.  No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval.  CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

CariCRIS reaffirms “adequate creditworthiness” ratings for The Government of Anguilla

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RATING DRIVERS

Supporting Factors

• Support from the UK Government as a British Overseas Territory
• The rebuilding of the economy and infrastructure continues following the passage of Hurricane Irma, although temporarily derailed due to COVID-19
• Fiscal performance remains carefully managed to control debt accumulation

Constraining Factors

• Small island developing state with significant capacity constraints, compounded by negative COVID-19 impacts
• Breached debt management benchmarks and increased debt servicing requirements
• Financial sector is characterized by high non-performing loans and low capitalization

Rating Sensitivity Factors

Factors that could, individually, or collectively lead to an improvement in the ratings and/ or Outlook include:

• Real GDP growth in excess of 5% over pre-hurricane level of GDP for at least 2 years
• A fiscal surplus of more than 5% of GDP recorded for at least 2 consecutive fiscal periods
• Meaningful diversification of the economy

Factors that could, individually, or collectively lead to a lowering of the ratings and/ or Outlook include:

• Delay in the implementation of GST in 2022
• A significant decline in grant support without other compensating revenues
• A change in the island’s status as a British Overseas Territory or a material change in the level of support rendered to Anguilla
• The banking sector’s capitalization ratio falling below 8%

SOVEREIGN BACKGROUND

Anguilla is the most northerly of the Leeward Islands in the Eastern Caribbean. Apart from the main island of Anguilla itself, which is sixteen (16) miles long and a maximum of three (3) miles wide, the territory includes a number of smaller uninhabited islands and cays. The island is noted for its ecologically important coral reefs. Anguilla is parliamentary representative democratic dependent Overseas Territory of the United Kingdom. The 1982 Constitution (amended in 1990) provides for a Governor, an Executive Council and a House of Assembly. The present Governor, Her Excellency Ms. Dileeni Daniel-Selvaratnam, took office in January 2021, and is responsible for external affairs, international finance, defence and internal security (including the police force) and the public service. General Elections were held on the 29 June 2020. The Honourable Premier, Dr. Ellis Webster of the Anguilla Progressive Movement (APM) was inaugurated on June 30, 2020. The APM currently holds seven out of the eleven parliamentary seats.

Construction and tourism are the main sources of economic production. Construction activity is typically driven by private sector investment in hotel development. Anguilla’s economy is highly vulnerable to downturns in the global economy, high international oil prices and unfavourable weather conditions.

Analytical Contacts:

Stefan Fortuné

Tel: 1-868-627-8879 Ext. 227

E-mail: sfortune@caricris.com

Maxwell Gooding

Tel: 1-868-627-8879 Ext. 228

E-mail: mgooding@caricris.com

Website: www.caricris.com

Email: info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable. However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval. CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.