Home Mortgage Bank’s Collateralised Mortgage Obligation – CMO 2022-01

RATING DRIVERS

Supporting Factors

High credit quality of securitised loans in mortgage pool
Good underwriting practices of TTMF, the originator of the mortgages within the pool
Simple transaction structure, with effective credit enhancement built in
Legal and regulatory framework supporting the transaction provides adequate protection to investors

Constraining Factor

Mortgage pool seasoning along with a challenging economic environment could increase default risk

Rating Sensitivity Factors

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

An improvement in the credit rating of the sovereign over the next 12-15 months

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

Impairments (delinquencies above 7.5% or NPLs above 5%) in the underlying mortgage pool leading to heightened extension and/ or default risk
Significant mortgage prepayments leading to a material reduction in excess spreads available to cover losses

BACKGROUND

CMO 2022-01 is a structured finance debt instrument being created by the Home Mortgage Bank (HMB or The Bank). The product was created to securitise residential mortgage assets purchased from the Trinidad Tobago Mortgage Finance Company Limited (TTMF) on the secondary mortgage market. CMO 2022-01 will offer participation certificates in 4 tranches in the amount of TT $100 million as follows:

Series A – TT $30.0 million with an average life of 0.96 years at an initial coupon rate of 3.00%
Series B – TT $20.0 million with an average life of 2.85 years at an initial coupon rate of 3.30%
Series C – TT $10.0 million with an average life of 4.25 years at an initial coupon rate of 4.00%
Series D – TT $40.0 million with an average life of 7.5 years at an initial coupon rate of 5.00%

The collateralised mortgages will be held in Trust by TTMF and governed by the laws of the Republic of Trinidad & Tobago and established by a Declaration of Trust. The investment security will have monthly coupon payments that are payable to all certificate holders. Certificates are structured to enable investors to participate in the acquisition and ownership of a pool of residential mortgages. Each Certificate will represent an undivided beneficial ownership interest in the Mortgage Pool. The principal amounts of each tranche available for distribution (Series A to D) will be repaid sequentially from all scheduled and unscheduled (prepayments, lumpsum payments and payoffs) payments. The final principal payment is expected to coincide with the maturity of each respective tranche. Thus, Series A will be fully repaid before principal repayment starts on Series B and so on. The Bank will also issue 3 additional Series; T1, T2 and R that will not be available for distribution^[1].

Analytical Contacts:

Khadine Tavares

Tel: 1-876-616-9813

E-mail: ktavares@caricris.com

Keith Hamlet

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

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.

Home Mortgage Bank’s Collateralised Mortgage Obligation – CMO 2022-01

CariCRIS assigns overall ‘high creditworthiness’ ratings to the proposed TT $100 million Collateralised Mortgage Obligation of Home Mortgage Bank.

Trinidad and Tobago Unit Trust Corporation (TTUTC)

CariCRIS reaffirms overall ‘high creditworthiness’ ratings for Trinidad and Tobago Unit Trust Corporation (TTUTC)

RATING DRIVERS

Supporting Factors:

The Mutual Funds Industry is large and important to the economy of Trinidad and Tobago
Dominant market share as the largest mutual funds provider in Trinidad and Tobago
Investment portfolio characterized by good asset quality and healthy investment returns
Strong risk management supported by improving operating efficiencies
Continued good financial performance despite the challenging economic and capital market conditions

Constraining Factors:

Existing legislation could serve to limit growth
A large percentage of Funds Under Management are held by one age demographic and could impact long term growth.

Rating Sensitivity Factors:

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

Improving market and economic conditions over the next 12-15 months, leading to sustained Net Investment Income growth in excess of 20%.
Diversification of funds under management across age demographics
Successful expansion into the Caribbean

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

A sustained decline in equity prices and interest rates over the next 12-15 months, leading to a 20% decline in Net Investment Income
A deterioration in the credit quality of the fixed income portfolios below investment grade.

COMPANY BACKGROUND

The Trinidad and Tobago Unit Trust Corporation (TTUTC or the Corporation) was established in 1981 by way of the Unit Trust Corporation of Trinidad and Tobago Act (the Act) and commenced operations in November 1982. Upon commencement of operations, the TTUTC introduced its First Unit Scheme (now called the Growth and Income Fund). The Corporation was established to serve two purposes: (i) to mobilize the savings of the domestic population in the Trinidad and Tobago financial system and channel these into desirable investments and (ii) to foster a wider shareholding democracy by providing persons of modest means with a facility to own shares. The initial contributors to the capital of TTUTC were the CBTT, the National Insurance Board, various local commercial banks, non-bank financial institutions and insurance companies.

Since its inception, the Corporation has evolved and expanded to become one of the largest financial services companies in Trinidad and Tobago with funds under management as at December 2021 of TT $24.9 Billion. The TTUTC now manages seven mutual funds consisting of the TTD Income Fund, the USD Income Fund, and the UTC Corporate Fund (3 fixed income funds), as well as the Growth and Income Fund and the Universal Retirement Fund (two balanced funds), the Calypso Macro Index Fund (a closed-ended equity fund), and the Global Investor Select Funds based in the Cayman Islands. The TTUTC continues to offer a range of services including, debit card services, bond processing, pension fund management and trustee services. The Corporation’s client base stood at 568,697(Individual 535,589 and Corporate 33,108) unitholders as at December 2021.

The TTUTC’s funds under management as at June 2021 represented approximately 7% of assets in the Trinidad and Tobago financial system^[1]. Given its size and importance to the financial services system as a financial intermediary, in 2013, it was designated as a Systemically Important Financial Institution (SIFI). The Corporation is regulated by the Trinidad and Tobago Securities and Exchange Commission (TTSEC) and the Trinidad and Tobago Stock Exchange (TTSE). In addition, given the Corporations status as a SIFI they adhere to the applicable principles outlined by the Central Bank of Trinidad and Tobago guidelines.

^[1] Central Bank of Trinidad and Tobago- Summary of Economic Indicators September 2021.

Analytical Contacts:

Sultan Mohammed

Tel: 1-868-627-8879 Ext. 240

E-mail: smohammed@caricris.com

Keith Hamlet

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

E-mail: khamlet@caricris.com

Website: www.caricris.com

Sagicor Life Jamaica Limited

RATING DRIVERS

Supporting Factors

Leading market position in the Jamaica insurance industry and a strong distribution network support a consistent and healthy financial performance
Overall financial stability supported by continued healthy profitability
Strong capitalisation level, in excess of regulatory requirement

Constraining Factors

Interest rate environment can challenge SLJ’s Asset Liability Management (ALM) position although rates are expected to increase in 2022
Significant business and financial exposure to the highly indebted Jamaican economy

Rating Sensitivity Factors

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

Improvements in the macroeconomic environment of Jamaica resulting in sustained higher levels of economic growth, i.e., real GDP growth of 2% – 3% sustained over the next 12 – 15 months, or significantly lower debt levels i.e., a debt to GDP ratio of below 75% by June 2023

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

Restructuring of the sovereign (GoJ) debt profile leading to a haircut in the principal of government bonds or a more than 30% reduction in the value of these bonds, thereby adversely impacting SLJ’s concentrated long term annuity business
Deterioration in the financial performance and profitability of SLJ, with a greater than 10% fall in premium income.

COMPANY BACKGROUND

Sagicor Life Jamaica Limited (SLJ or the Company), a member of the Sagicor Group of Companies, commenced operations in 1970 as the first Jamaican-owned life insurance company. In 2013, a holding company, Sagicor Group Jamaica Limited (SGJ) was established, and this entity owns 100% of SLJ. Sagicor Life Incorporated (SLI) is the majority shareholder of SGJ and the principal operating subsidiary of Sagicor Financial Company Limited (SFC)^[1], which itself owns 49.11% of SGJ. SLJ is considered the main operating subsidiary of SGJ. Following the reorganisation of the Jamaican operations, SLJ was delisted from the Jamaica Stock Exchange and replaced by SGJ.

The Company markets an extensive range of long-term and equity-linked Individual Life insurance products, Group Life, Group Health, Personal Accident plans and Group Pension plans. Some of the Company’s other services include residential and commercial mortgages, annuities, real estate development and management, investment management and lease financing.

Analytical Contacts:

Megan Dass

E-mail: mdass@caricris.com

Keith Hamlet

Cell: 1-868-487-8356

E-mail: khamlet@caricris.com

Website: www.caricris.com

E-mail: info@caricris.com

Sagicor Life Jamaica Limited

CariCRIS reaffirms ‘highest creditworthiness’ rating for Sagicor Life Jamaica Limited.

RATING DRIVERS

Supporting Factors

Leading market positions and strong brand equity support a consistent and healthy financial performance
Rebound in financial performance in 2021, following negative impacts of Covid-19 pandemic in 2020
Continued comfortable capitalisation levels
Strong and comprehensive enterprise risk management

Constraining Factors

Uncertain interest rate environment has the potential to challenge the Group’s asset liability management
Significant sovereign risk exposure to the highly indebted Jamaican economy despite the improved economic conditions

Rating Sensitivity Factors

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

An increase in our internal ratings assigned to the sovereign, driven by continued favourable improvements in the macroeconomic environment of Jamaica and a lowering of the debt/GDP ratio

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

Substantial deterioration in the financial performance and profitability of the Group, with a greater than 20% increase in net insurance benefits and claims and an accompanying 15% rise in operating expenses.

COMPANY BACKGROUND

Sagicor Group Jamaica Limited (“SGJ” or the “Group”) is a financial services conglomerate that was incorporated in 2013 and is domiciled in Jamaica. The Group, which is listed on the Jamaica Stock Exchange (JSE), is 32.45% owned by LOJ Holdings Limited and 16.66% owned by Sagicor Life Incorporated, both wholly owned subsidiaries of Sagicor Financial Company Limited (SFC)^[1]. Its other major shareholder is PanJam Investment Limited (30.21%). The Group is comprised of thirteen (13) subsidiaries with operations in three main countries^[2], these being Jamaica, The Cayman Islands and the United States of America. Its three (3) largest operating subsidiaries are Sagicor Life Jamaica Limited (SLJ), Sagicor Bank Jamaica Limited (SBJ) and Sagicor Investments Jamaica Limited (SIJ). The Group offers an extensive range of financial products and services in the areas of insurance, banking, asset management, real estate and retirement planning. As at September 30, 2021 the Group’s total assets stood at J $506.5 billion and total revenue was J $73.1 billion^[3]. In 2020, SGJ declared profit attributable to shareholders of J $13.8 billion, the second highest of conglomerates listed on the Jamaica Stock Exchange.

Analytical Contacts :