The Caribbean Information and Credit Rating Services Limited (CariCRIS) has upgraded the overall issue rating assigned to the TT$200 million collateralised mortgage obligation (CMO) of Home Mortgage Bank (HMB) to ttAA– on the Trinidad and Tobago national scale. 

This rating indicates that the overall level of creditworthiness of this structured debt obligation, adjudged in relation to other rated debt obligations within T&T is high.

The upgrade is underpinned by the improved credit risk profile of the obligation, designated CMO 2019-01, following the successful repayment of ‘Tranche E’ in March 2024, 12 months ahead of schedule, alongside an improving non-performing loans (NPL) ratio. Furthermore, the early repayment pattern observed from the senior tranches is expected to continue onto the more subordinate tranches which lowers the CMO 2019-01’s extension risk.

CariCRIS has also assigned a stable outlook on the ratings. The stable outlook is premised on expectations of continued improvements in economic conditions in T&T in the year ahead, which can largely benefit businesses and households.

“Therefore, this is expected to support the continued stability of CMO 2019-01’s overall credit risk, with a slight improvement in asset quality anticipated alongside the derisking of the transaction as payments continue to be made ahead of schedule over the next 12-15 months,” CaruiCRIS concluded.

The rating of CMO 2019-01 reflects the simple transaction structure, with an effective built-in credit enhancement, and legal and regulatory framework that provides adequate protection to investors. The ratings are further backed by the good credit quality of the securitised mortgage pool, with some notable improvements, as well as the continued good underwriting practices from the Trinidad and Tobago Mortgage Bank (TTMB), the mortgage originator. These rating strengths are constrained by the mortgage pool seasoning which could increase default risk.

About the transaction:

CMO 2019-01 is a structured finance debt instrument issued by the Home Mortgage Bank (HMB) to securitise residential mortgage assets purchased from the Trinidad & Tobago Mortgage Finance Company Limited (TTMF) on the secondary market. On March 21, 2024, TTMF was officially rebranded to the Trinidad and Tobago Mortgage Bank Limited (TTMB), following HMB’s acquisition by TTMF.

CMO 2019-01 offers participation certificates in nine tranches in the amount of TT $200 million.

The collateralised assets are held in trust by First Citizens Trustee Services Limited (FCTS), governed by the laws of the Republic of Trinidad & Tobago and established by a declaration of trust.

The investment security has monthly coupon payments that are payable to all certificate holders and the principal for each tranche available for distribution (Series A to I) are being paid sequentially as the underlying mortgages are repaid. Thus, Series A was fully repaid before principal repayment started on Series B and so on. Certificates are structured to enable investors to participate in the acquisition and ownership of a pool of residential mortgages.

Each certificate represents an undivided beneficial ownership interest in the mortgage pool.

HMB has also issued two tranches, T and R, that will not be available for distribution.  

As at the date of this report, Tranche A, B, C, D and E have been fully repaid.

The CMO Certificates aim to diversify HMB’s funding tools, generate liquidity and manage HMB’s gearing position3. The purpose of the CMO, therefore, is to provide funding to HMB to acquire mortgage loans on the secondary market from approved mortgage lenders and to meet HMB’s corporate financing needs.

Following its acquisition, HMB, as issuer of the security, appointed FCTS as the trustee in June 2024. TTMB remains the administrator of the transaction, while HMB also performs the roles of registrar and paying agent. 

The appointed legal advisors for the transaction are the law firms, Pollonais, Blanc, de la Bastide & Jacelon and MG Daly & Partners.

This represented the third CMO issued by HMB, with the previous two successfully issued in 1999 and 2000 respectively. Subsequently, HMB issued two more CMOs; CMO 2020-01 and CMO 2022-01 in March 20204 and April 20225 respectively.