Fitch Ratings has assigned final ratings to the notes issued by La Hipotecaria Sixteenth Mortgage-Backed Notes Trust as listed below.

There were no changes to the structure or to the underlying pool of mortgages backing the transaction since the assignment of the expected rating on Oct. 15, 2021. The Series A notes priced five basis points lower than initially expected and modeled by Fitch, credit positive to the transaction.

TRANSACTION SUMMARY

The notes are backed by a $112.5 million pool of residential mortgages to lower-to middle-income borrowers in Panama by Banco La Hipotecaria S.A. (La Hipotecaria). Fitch’s ratings address the likelihood of timely payment of interest on a monthly basis and ultimate payment of principal by legal final maturity in July 2052 for the Series A notes and ultimate payment of interest and principal for Series B and C notes.

KEY RATING DRIVERS

Assumptions Reflect Portfolio with Standard Characteristics (Neutral): Fitch has defined a weighted average foreclosure frequency (WAFF) of 14.5% and a WA recovery rate (WARR) of 56.4% for the ‘BBB-sf’ stress scenario and a WAFF of 5.6% and a WARR of 73.6% for the expected scenario. These assumptions consider the main characteristics of the assets: seasoning averages 49 months, the remaining term is 312 months, the WA original loan-to-value ratio is 90.2%, the WA current loan-to-value ratio is 79.1%, the WA payment-to-income ratio is 26.4%, and the vast majority of borrowers (88.5%) pay through payroll deduction mechanism.

Adequate Capital Structure Supports Ratings (Positive): The Series A notes benefit from a sequential-pay structure wherein target amortization payments for this series are senior to interest and principal payments on the Series B and C notes. The series A notes also benefit from credit enhancement (CE) of 11.1%, an interest reserve account equivalent to 3.0x its next interest payment and excess spread, which allow them to pass the ‘BBB-sf’ stresses. The series B notes benefit from CE of 2.2% and excess spread, while the series C notes benefit from excess spread, although none of them are able to surpass the expected WAFF and WARR defined by Fitch.

Exposure to Subsidy from Panamanian Government (Negative): 100% of the mortgage pool benefits from Panama’s Preferential Treatment Law, whereby the government provides lenders a subsidy, through fiscal credits, for originating mortgages below market interest rates for a definite period of 10 or 15 years. This exposes the transaction to negative carry, as cash flows from these fiscal credits are received with some delays after they are originated.

Operational Risk Mitigated (Neutral): Grupo ASSA, S.A. (the primary servicer) has hired La Hipotecaria as the servicer for the mortgages. Fitch considers La Hipotecaria’s expertise in originating and servicing mortgages for low- to middle-income borrowers to be adequate and in line with market standards. Fitch currently rates four other RMBS transactions backed by mortgages originated by La Hipotecaria out of Panama.

Ratings Capped by Country of Assets (Negative): Panama’s Issuer Default Rating is ‘BBB-‘/Negative Rating Outlook and its Country Ceiling is ‘A-‘ (as of Feb. 3, 2021). The rating of the series A notes is constrained by Panama’s sovereign rating due to the portfolio’s exposure to the sovereign. About 18.3% of the residential mortgages were granted to employees of the top five public sector employers within the proposed pool of mortgages and 100% of the pool benefits from an interest rate subsidy provided by the Republic of Panama.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The ratings of the La Hipotecaria Sixteenth Mortgage-Backed Notes Trust Series A Notes are sensitive to changes in the credit quality of Panama. A downgrade of Panama’s ratings could lead to a downgrade on the series A notes. Severe increases in foreclosure frequency as well as reductions in recovery rates could lead to a downgrade of the notes.

The transaction performance may also be affected by changes in market conditions and the economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce CE available to the notes. Additionally, unanticipated declines in recoveries could lead to lower net proceeds, which may make certain note ratings susceptible to potential negative rating actions depending on the extent of the decline in recoveries. Fitch conducts sensitivity analyses by stressing both a transaction’s base case FF and RR assumptions and examining the rating implications on all classes of notes. Results of Fitch’s sensitivity analysis can be viewed in the related presale report.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

The ratings of the La Hipotecaria Sixteenth Mortgage-Backed Notes Trust Series A Notes are sensitive to changes in the credit quality of Panama. An upgrade of Panama’s ratings could lead to an upgrade on the notes.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAAsf’ to ‘Dsf’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Fitch was provided with Form ABS Due Diligence-15E (Form 15E ) as prepared by KPMG. The third-party due diligence described in Form 15E focused on comparing or re-computing certain information with respect to 300 mortgage loan contracts from the collateral pool of assets for the transaction. Fitch considered this information in its analysis, and it did not have an effect on Fitch’s analysis or conclusions. A copy of the Form 15-E received by Fitch in connection with this transaction may be obtained through the link contained at the bottom of the related rating action commentary.

DATA ADEQUACY

Historical vintage data on La Hipotecaria’s mortgage portfolio are publicly available on its website. Detailed information on recovery levels and delinquency migration/transition matrices is also available. The historical data on La Hipotecaria’s portfolio are prepared by Asset Technologies, LLC.

Fitch was provided with information on a loan-by-loan basis; the data delivered were of good quality.

The data used in the development of the ratings were reviewed by Fitch and are considered sufficient for the ratings to be assigned.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction’s representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled ‘Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions’.

ESG CONSIDERATIONS

La Hipotecaria Sixteenth Mortgage-Backed Notes Trust has an ESG Relevance Score of ‘4’ for Human Rights, Community Relations, Access & Affordability due to its Exposure to Accessibility to Affordable Housing, which in combination with other factors, impacts the rating.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch’s ESG Relevance Scores, visit www.fitchratings.com/esg.

Additional information is available on www.fitchratings.com