Subscores help investors to evaluate different aspects related to the risk of a loans available for investment as Notes, even if the services are provided by multiple entities. They are expressed numerically and are assigned to Loan portfolio performance, Loan servicer efficiency, Buyback strength, Cooperation structure. Subscores contribute to the Mintos Risk Score with the following weight: 40% Loan portfolio performance, 25% Loan servicer efficiency, 25% Buyback strength, 10% Cooperation structure.
The calculated numerical value is rounded to the nearest integer. For example, if the calculated numerical value is in the range of 6.5 to 7.4, the score is rounded to 7. Numerical values are split across three intervals: lower risk (10-8), mid risk (7-5), and higher risk (4-1).
Loan portfolio performance subscore
To understand portfolio quality, we compare non-performing loans ratio, annual percentage rate, and maturity term to the direct portfolio-related operational costs. Besides other portfolio health indicators, we take a deep look into the historical performance of the lending company’s loan book. The loan portfolio performance subscore is calculated based on information about:
- Loan portfolio profitability
- Historical and current loan repayment trends
- Historical and current loss rates
- Issuance volumes
- Track record
- Product characteristics (e.g. liquidity of the collateral)
Loan servicer efficiency subscore
Through this subscore we measure the loan servicer’s efficiency when it comes to collection of borrowers’ payments. Capabilities of the loan servicer are expressed in a subscore that’s an evaluation summary of:
- Financial profile
- Business procedures, compliance, and quality control
- Company’s management and internal risk controls
- Loan administration structure and processes
- Management of non-performing loans
In some cases, the loan servicer can be a different business entity from the loan originator.
This subscore measures the buyback strength and is a summary of the obligor’s ability to fulfil contractual obligations, meet liquidity needs and capital sufficiency. We calculate this subscore based on:
- Financial profile, performance, and projections
- Management experience
- The business regulatory and legal environment
- Diversification of revenue streams and geographies
In rare cases, the buyback can be the responsibility of a business entity that’s different both from the loan originator and from the loan servicing company. Even if such cases appear, with the current Mintos Risk Score evaluation model, it will be possible to have an insight into the standings of all involved business entities.
In case when a lending company does not offer loans with a buyback, a subscore for this category is excluded from the weighted average of the final Mintos Risk Score.
The Cooperation structure subscore evaluates the legal setup between the lending company and Mintos. Factors that are evaluated, summarized and expressed with this subscore are:
- Access to borrower-related cash flows for Mintos
- Recoverability potential based on the legal setup
- Transparency of cooperation structure for investors