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Portfolio Credit Model

Version 2.10.0

1 © Copyright Fitch Ratings Ltd 2020

TABLE OF CONTENTS

Starting the Model .................................................................................................... 3

The Tool Bar ............................................................................................................. 5
A. Utilities .............................................................................................................. 5
B. Paste Values .................................................................................................... 5
C. Validate Data .................................................................................................... 6
D. View.................................................................................................................. 7
E. Calculate Portfolio Properties ........................................................................... 8
F. Run Simulation ................................................................................................. 8
G. SA Tools ........................................................................................................... 8
H. CFM Tools ........................................................................................................ 9
I. Generate Report............................................................................................... 9
J. Help Function ................................................................................................... 9
Input: Simulation Parameters ............................................................................... 10
Input: Portfolio ....................................................................................................... 12
A. Generic Portfolio Inputs .................................................................................. 12
B. Corporate Portfolio Inputs............................................................................... 16
C. Corporate SME Portfolio Inputs ...................................................................... 18
D. Corporate SME Portfolio Data Mapping ......................................................... 23
E. Structured Finance Portfolio Inputs ................................................................ 24
F. REITS & CREL Asset Inputs Inputs ............................................................... 25
G. Public Finance Portfolio Inputs ....................................................................... 25
Input: Asset Class Parameters ............................................................................. 28
A. Obligor Concentration Stress Inputs............................................................... 28
B. Corporate Parameters Inputs ......................................................................... 30
C. ABS Parameters Inputs .................................................................................. 32
D. PF Parameters Inputs..................................................................................... 33
Outputs ................................................................................................................... 34
A. Asset Properties Outputs................................................................................ 34
B. Portfolio Properties and Stratification Outputs ................................................ 36
C. Analytic Output ............................................................................................... 42
D. Cashflow Model Assumptions – Corporate and SME CLOs only ................... 44
E. Distribution Output .......................................................................................... 49
Assumptions – Criteria PD, Criteria RR, Criteria SME ........................................ 50
Tools & Functionality: CDO^2............................................................................... 52
Tools & Functionality: Structural Analysis .......................................................... 54
A. Inputs.............................................................................................................. 54
B. Outputs ........................................................................................................... 56
Installation .............................................................................................................. 59
A. System Requirements .................................................................................... 59
B. Installation Checklist ....................................................................................... 59
C. Downloading the Fitch Ratings Portfolio Credit Model ................................... 59
D. Installing the Fitch Ratings Portfolio Credit Model .......................................... 60
E. Reinstalling the Fitch Ratings Portfolio Credit Model...................................... 60
F. Downloading and Installing the Fitch Ratings ResiEMEA Model .................... 60

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Starting the Model
Step One: After a standard installation (See Appendix II) - From the start menu
select Programs, Fitch PCM, or use the desktop short cut to launch from the desk
top. The following window will be displayed. Select Standard PCM and click the Go
button.

Step Two: The next screen allows the user to select the asset types. For example
the collateral for securitizations of small and medium size corporates (SMEs) does
not usually include larger corporates or asset back securities. In this case the user
can tick off asset backed securities and larger corporates. This will cause PCM to
only display the relevant inputs for SME assets. The user can select any combination
of the four main asset types in PCM.

Step Three: This will launch excel and open the excel template of the Model.

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Page 4 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
The Tool Bar
A. Utilities

Load – Loads the portfolio data from a saved XML file.

BatchRun
The PCM also provides the option to run a batch of portfolios. To do so the user
should select all saved portfolio files and the model will sequentially load each
selected portfolio and run the Monte Carlo Simulation. Once the simulation has run
the model will save the data as XML file in the same folder.

SaveXML – Saves a copy of the current portfolio data as XML file.

SavePCMFile – Validates the data and saves a copy of the current portfolio data as
XML file only if the data passes the validation. The saved file has the extension
.pcm.

Clear Portfolios – Clears all the current portfolio data.

Clear All – Clears all the current portfolio data, the correlation values and all the
results.

Clear This – Clears the worksheet that is currently displayed

Reset All – Resets all parameters and correlation assumptions to the Fitch Ratings
default correlation assumptions.

Reset This – Resets the default values for the currently displayed worksheet,

Example Portfolios – Loads example portfolios for all asset classes ( corporate,
corporate SME and Structured Finance),

B. Paste Values

The only way in PCM to import data is by using the Past Values button on the toolbar
which executes a paste special for values only. The same function can be used to
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import data from another excel application which executes a copy text command.
Both preserve the original formatting of the PCM input sheet.

Note: When copying numerical values from another excel application that are using
the scientific format the paste command will copy the value into a string text value as
shown in scientific format in the source file. For example a number of 1.00E+09
when copied from a different excel application would become a string value of
1.00E+09 when copied to a text field in PCM.

To avoid accidental changes of the input cell formatting by coping formats PCM is
locked for the standard paste functionality (Ctral+^Insert and Ctrl + V). The
formatting is particularly important for text string Ids or nace codes that may start
with a 0 which under the number format would vanish and change the IDs.

C. Validate Data

This checks the portfolio data for errors (the validation is carried out automatically as
part of the ‘Calculate Portfolio Properties’ or ‘Run simulation’ functions). All invalid
data will be highlighted and a drop down menu showing the allowed values is
provided for all required alphanumeric fields. The arrows to the right can be used to
locate to the next invalid input and navigate back and forward between fields.

e.g.

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D. View

This allows navigation to certain worksheets and the display or hiding of certain
attributes on the ‘Corporate Portfolio’ and ‘ABS portfolio’ worksheets as follows:

Simulation Parameters – go to Simulation Parameters worksheet

Corporate Portfolio – go to Corporate Portfolio worksheet

ABS Portfolio – goto ABS Portfolio worksheet

Corporate SME Portfolio – goto Corporate SME Portfolio worksheet

Simulation Summary – go to Simulation Summary worksheet

[+/-] Recovery Rates – Show or hide asset specific recovery rate input fields on
the portfolio worksheets

[+/-] Amortisation – Show or hide the amortisation schedule input fields on

portfolio worksheets

[+/-] CDO Squared – Show or hide CDO^2 input fields on Corporate Portfolio
worksheet

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E. Calculate Portfolio Properties

Calculate all portfolio characteristics such as portfolio weighted average life or

weighted average rating as well as asset specific properties such as the Fitch
Derived Rating or the asset weighed average life. For more details see outputs
section below. This function will not run the monte carlo simulation.

F. Run Simulation

This will run the simulation and produce the portfolio and asset specific properties as
well as the analytical outputs (see outputs below).

The time to complete the simulation will depend on, among others, the number of
simulation runs, the simulation horizon, and the number of assets in the portfolio and
computer hardware. As a guide, for a portfolio of 100 assets, a 10-year simulation
horizon and 1,000,000 simulation runs, the simulation takes between one and two
minutes. Simulation speed can be improved by:
a. shutting down all other applications;
b. running the model on a standalone work station; and
c. using a computer with a 2GHz processor or higher.

The simulation progress is shown in the start up window. While the simulation is
running the excel application is locked and hidden.

G. SA Tools

Load Standard Assumptions For SA Tool – Enters the standard assumptions for
Interest Rates and Cure Rate Tiering into the Structural Analysis tool.

Run SME Structural Analysis – runs the tool.

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H. CFM Tools

Generate CLO Cashflow Model Inputs EMEA – Generates the cashflow model inputs
for CLOs using EMEA assumptions. The inputs appear on the simulation summary
sheet.

Generate CLO Cashflow Model Inputs US – Generates the cashflow model inputs for
CLOs using US assumptions. The inputs appear on the simulation summary sheet.

Load Standard Assumptions for SMEs – Loads the standard assumptions as per
SME criteria into the cashflow model inputs on the Simulation Summary sheet.

Generate SME Cashflow Model Inputs – Generates the cashflow model inputs for
SMEs, requires either the standard assumptions to have been loaded and user input.

I. Generate Report

The function generates a Microsoft word report and copies all output tables to the
word document.

J. Help Function

The PCM help function provides a drop down menu with links to several pdf
documents, which include the model handbook and all major criteria reports related
to the model.

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Input: Simulation Parameters
This section describes all model inputs including portfolio and asset characteristics,
which are needed for the monte carlo simulation. Some of the inputs are optional
while others are required for the simulation to run.

Main parameters
 Transaction Name (optional)
Your reference name for the transaction

 Evaluation date (required)

Can be any date in the future or past. The evaluation date is used in
conjunction with the expected weighted-average maturity date to calculate the
weighted-average life of each asset in a portfolio, as well as determine the
simulation horizon.

 Number Simulations
The number of Monte Carlo simulation scenarios to run. Fitch recommends
1,000,000 simulations in order to ensure sufficient convergence for most
portfolios. Convergence is highly portfolio dependent.

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  Number Of Threads
PCM is designed to run the simulation on multiple process cores in parallel.
For example with a dual core a monte carlo simulation of one million
simulation trials, would be run in two threads of 500 thousand simulation trials
per processor core. This should approximately reduce the simulation run time
by 50%.

 Analysis Mode
The analysis mode is set to ‘Criteria’. Starting with version 2.4.4 the model
only allows the user to select the ‘Criteria’ from the drop down menu. This is
equivalent to running ‘NewDeal’ in previous versions and applies the OCU.

Extra Data To Load

 Load Asset Class Parameters
Load the correlation numbers from the saved XML file.

 Load Simulation Parameters

Load the simulation parameters from the saved XML portfolio.

Output
 Default Timing
Provides the average default timing for the portfolio. For portfolios without
asset amortisation or CDO squared features the simulation runtime can be
significantly reduced by setting the flag to no.

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Input: Portfolio
The first section describes the generic asset inputs that are common to most of the
four asset type (Large Corporate, SME Corporate, Public Finance and SF) in PCM.
The following sections describe the specific attributes for each asset type.

A. Generic Portfolio Inputs

Asset Name (optional) – This is a text field that describes the

asset. This field is not used by the model but allows the user to
enter asset specific information.

Asset ID (required) –a unique case sensitive string value.

Issuer Name (optional) – This is a text field that describes the

issuer. This field is not used by the model but allows the user to
enter issuer specific information.

Issuer ID (required) – a unique case sensitive string value that identifies

each individual issuer. All assets from the same issuer should have the
same issuer ID. During the simulation the same random variable will be
applied to all assets with the same Issuer ID, which will effectively impose a
correlation of 100% between all assets from the same issuer. As the

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correlation is derived from country and industry all assets from the same issuer
should also have the same country and industry. Ratings and seniority are asset
specific information and may vary between assets from the issuer.

OCU Selection (optional) – Allows the user to overwrite the model selection
of the largest risk contributors by selecting specific Obligors for the Obligor
concentration stress. Note that any selections in this field are NOT in
addition to the model selection but instead of. Therefore selecting even a
single asset in this field will turn off the model selection.

Current Par Value (required) – Represents the current notional or par

value of each asset. For synthetic CDOs the asset par value represents
the reference notional of each of the underlying obligors.

Current Balance Date (optional) – is the cut off date for the current
balance. This field in conjunction with the evaluation date is used to
determine the amortisation schedule and the weighted average life of each
asset. If this field is left blank the current balance date is set to the
evaluation date. By setting this date the user can move the valuation date
foreward and the model will recomputed the amortisation schedule and the weighted
average life automatically.

Expected Maturity Date (required) – for bullet assets this is the maturity
date of the asset.

Fitch Rating (required if available) – This is the Fitch rating of the asset as
of the valuation date. For corporate entities, the rating should be the Issuer
Default Rating (IDR) of the company. For securities rated ‘D’, Fitch Ratings
Portfolio Credit Model will assume a 100% default probability and that asset
will default in the first period each simulation trial.

Status Fitch (required if available) – represents the outlook and rating

watch information for the explicit Fitch rating. The Rating Watch settings
should take precedence over the Outlook. The Rating Watch and Outlook
information will be used in determining the Fitch Derived Rating (FDR) (see
“Global Rating Criteria for Corporate CDO’s”, for further information and
“Global Rating Criteria for Structured Finance CDO’s”).

Alternate Ratings and Status 1 & 2:

These are ratings from other nationally recognised
statistical rating organisations (NRSROs), which will be
required for the FDR only if there is no explicit Fitch
rating available.

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NOTE: If ALL ratings are left blank then a rating of CCC will be assumed for
that asset

Default Probability Multiplier (optional) – allows the user to adjust the

default probability assumption. For example, to increase the default
probability for a specific asset by a net 10%, the user should input 110%. If
this field is left blank the default value will be 100% (i.e. no adjustment).
Note that any adjustment will alter the default term structure of this asset.

Country (required) – The country represents the geographical

location of the individual company; for multinationals this can be the
country where the majority of assets are held. The Country is used in
the correlation framework and affects the pairwise correlation
between assets. The country is also used to determine the recovery rate for some
asset types.

Recovery Rates
By default the model will use Fitch’s standard tiered recovery rates found on the
Recovery Rates worksheet. However this may be overridden or altered by the
following methods:

Recovery Rate Multiplier (optional) – May be used to adjust base

recovery rates. For example, to reduce the base recovery rate for a specific
asset by 20% the user should input 80%. If this field is left blank, the default
value will be 100% (i.e. no adjustment).

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Asset Specific Recovery rates (optional)
To make this section of the portfolio input sheets visible select the toolbar option
Show, [+] Recovery Rates.

Allows the user to specify recovery rates to be used in each liability rating stress
scenario for each asset. When using the asset specific recovery rates all of the fields
need to be populated.

Asset Amortisation Schedule (optional)

To make this section of the portfolio input sheets visible select toolbar option Show,
[+] Amortisation

Amortisation Schedule (optional) – The user can select to model individual assets
as amortising assets (as opposed to bullet maturities) using the amortisation
schedule. The amortisation schedule is specified in terms of the outstanding notional
as a percentage which will be applied to the par value of each asset. The schedule
shows the month from the current balance date when the payment is received and
the balance is adjusted. In the example above the balance is adjusted to 90% at the
end of month 3 (effective in month 4). The balance is further adjusted in month 6 to
80%. The values have to be equal to or greater than 0 less than or equal to 1.
Furthermore any future value has to be equal to or less than the previous value. By
selecting a value less than one for any period the asset will be registered as
amortising and the model will overwrite the expected maturity date. In each
simulation trial the model will determine the month of default for each issuer. If the
amortisation schedule was entered the model will register a loss based on the
outstanding notional as at the time of default.

NOTE: The Expected Maturity Date field is ignored when an asset has an
amortization schedule.

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B. Corporate Portfolio Inputs

Portfolio Inputs – Generic (described in section A above)

Asset Name; Asset ID; Issuer Name; Current Par Value; Current Balance Date;
Expected Maturity Date; Fitch Rating; Status Fitch; Alternate Ratings and Status
1&2; Default Probability Multiplier; Country; Recovery Rate Multiplier; Asset Specific
Recovery Rates; Amortisation Schedule

Portfolio Inputs – Corporate Specific

CDS Implied Rating (CDS-IR) – (required for the initial analysis, see
“Global Rating Criteria for Corporate CDO’s”, for further information on the
use of CDS-IR). The CDS implied rating is only used if the FDR process on
the simulation parameter page is set to ‘New Deal’.

Fitch Industry (required) – For corporate entities, this represents

the business sector of an underlying obligor. For diversified
companies the applicable industry class should be derived from the
Industry accounting for the majority of the company’s revenues. All
assets from the same issuer should have the same industry. The industry, together
with the Country classification, determines the correlation of an asset with all other
assets in a portfolio applied by the model.

Recovery Classification (required) – Describes recovery

expectation for the particular asset. The standard classifications are
strong, moderate and weak. The user can also enter the specific
recovery rating (if available) between RR1 and RR6. The Recovery
Classification in conjunction with the Country, determines the
recovery rate for a specific asset. (For US second lien loans select
junior secured).

Recovery Estimate (optional) – The user may enter a recovery

estimate, which will override the model recovery rate assumptions. The
recovery estimate will be used to interpolate recovery assumptions for
each rating level on the basis of the BB column for the recovery ratings
criteria table.

Time To Recovery (optional) – The user may enter the recovery lag in
months. If no number is entered PCM uses the recovery lag from the
corporate criteria.

Fixed/Floating (required) – Describes whether the asset pays a fixed

or floating interest rate. This is used when calculating the fixed floating
interest rate buckets.

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 Loan Interest Rate/Margin (required) – This field relates to the interest
rate paid by a specific loan or bond. It is used when calculating the fixed
floating interest rate buckets.

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C. Corporate SME Portfolio Inputs

The SME Portfolio input worksheets contains separate input tables for issuers,
collateral and assets. This allows to enter several collateral items per asset and
multiple assets per issuer without replication of data. Therefore all the issuer related
inputs are grouped together in the issuer table.

Note: The naming convention for SME loan portfolios is different to other asset types
in PCM. For SME loans issuers are referred to as borrowers and assets are referred
to as loans. Despite the different convention the description of generic inputs given
above remains the same for SMEs. So for example the issuer Id for SMEs would be
the borrower Id but remains a unique alphanumeric field.

Borrower Inputs – Generic (described in section A above)

Borrower Name; Borrower ID; OCU Selection

Borrower Inputs – SME Specific

Borrower Industry (required; string) – this represents the
business sector of the borrower. For diversified companies the
applicable industry class should be derived from the Industry
accounting for the majority of the company’s revenues. Input
Values that are not recognised as Fitch industries or NACE
codes will have to be mapped on the SME Ptfl mapping page to
a Fitch industry class. PCM uses the four digit Nace code with an n as a prefix.

Borrower Location (required, string) – this represents the

country of the borrower. For multi national companies the
applicable country class should be derived from the country
accounting for the majority of the company’s revenues. Inputs
that are not on the allowed PCM country list will have to be
mapped on the SME Ptfl mapping page to an allowed PCM country.

Borrower Size Group (required, string) – allows the user to

differentiate between micro, small, medium and large
companies. Most banks use an internal classification that is
derived from the EU turnover based definition. This field needs
to be populated but is only used for portfolio statistics.

Loan Inputs – Generic (described in section A above)

Loan Name, Loan ID, Borrower ID, Current Balance Date, Expected Maturity Date;
Asset Specific Recovery Rates; Amortisation Schedule

Loan Inputs - SME Specific

Bank Internal Rating (optional; string) – The user can enter an
internal rating. The input has to be mapped to a corresponding
one year PD value using the mapping table on the worksheet
SME Ptfl Mapping.

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 One year PD (required if no rating; double) – The user can enter a one
year pd assumption. This is optional together with a bank internal rating
rating. In the absence of a rating this is a required field. The one year PD
assumption is used to determine an average pd term structure based on
the nearest rating based term structures. If both the one year PD and a rating are
specified the user input for the one year Pd will overwrite the rating based PD.

Delinquent (required) – shows the delinquency status for each asset. This
has to be a positive integer number of 0 or higher. Delinquent assets are
assigned a higher PD assumption. The model will select the higher of (i)
user defined one year pd (if specified, otherwise the rating implied one
year PD), and (iii) the one year pd derived from the delinquency status.

Unsecured Recovery Rate Multiplier (optional) – May be used to adjust

unsecured recovery rates. For example, to reduce the unsecured recovery
rate for a specific asset by 20% the user should input 80%. If this field is left
blank, the default value will be 100% (i.e. no adjustment). Adjustments are
typically done on a case-by-case basis and should only be made in
consultation with a Fitch analyst to ensure the model accurately reflects agency
assumptions.

Flag Asset Specific Recovery Rating Cap (optional) –

Determines whether the asset specific recovery rates are
used as either recovery rates (blank) or recovery rate caps
(cap). If the user selects Cap the Asset specific recovery
rates will be applied in conjunction with the criteria
recovery rates calculated by PCM. For example if the cap
for AAA is specified to be 5% and the criteria recovery rates based on MVDs and
collateral values is 10%, the model will apply the lower of the two. In this case 5%.
Loan Interest Basis, Loan Interest
Rate and Loan Interest Rate/Margin
Margin (required) – These fields relate
to the interest rate paid by the specific
loan. The loan interest basis can be
fixed or floating and for floating rate loans should identify the specific index. The
Loan Interest Rate is the current interest rate paid by the loan, and should be
entered the same as the Loan Interest Rate/Margin for fixed rate loans. For floating
rate loans the loan interest rate shows the current interest rate including margin and
index, while the loan interest margin only show the margin charged over the index.
The Loan Interest Basis and Loan interest margin are used for portfolio statistics and
report and do not affect the PCM analytic output.

Standard Amortisation Profile (required) – For SME assets PCM allows to model
standard amortisation profiles
including linear and annuity profiles.
The user can specify the applicable
profile under amortisation method.
Note this will be overridden by the user

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defined amortisation profile (if any) as explain in the generic inputs. The user needs
to provide the payment frequency as well as the loan interest rate.

For amortisation method and payment frequency the user can enter any string or
select a value from the allowed list in the drop down menu. If the input is not
recognised by PCM as an allowed value the user has to assign a corresponding
allowed value on the SME Ptfl Mapping worksheet.

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Collateral Input (optional)

The recovery analysis for SME assets is based on the level of collateral provided.
Assets without assigned collateral will be considered unsecured and the unsecured
recovery assumptions will apply. It is possible to enter multiple collateral items for
each asset. All collateral related inputs are group in the collateral table. Collateral
items are optional, but most of the inputs are required if a collateral ID is entered.

Collateral ID (optional, string) - a unique case sensitive string value. Like

asset IDs and Issuer IDs the collateral id is used in pcm to determine the
number of collateral items. The model will consider all entries up to the first
blank cell.

Loan ID (required if Clt Id, string) – a string id from the loan table that
is used as key to assign collateral items to the specific assets. It is
possible to use the same loan Id multiple times which indicates
multiple collateral items for a specific loan.

Collateral Type (required if Clt Id, string) – This indicates the type of
collateral which determines the collateral analysis. The user can enter
a value from the allowed list as show in the drop down menu. If the
input is not recognised by PCM the user will be asked to assign a
corresponding mapped value from the list of allowed values on the SME Ptfl
mapping worksheet. For residential collateral the Fitch Residential Default Model is
used and has to be installed along side PCM (see Installation Section). For cash like
asset no market value decline will be applied.

Collateral Value Multiplier (optional) – a positive floating number that

allows the user to apply an adjustment to the collateral proceeds. For
example a Collateral Value Multiplier of 90% means the collateral value is
reduced by 10%.

Collateral Value (required if Clt Id, double) – a positive floating point

number. For residential properties this should be the value of the property
at the time of the valuation date. For commercial or other collateral this
should be the current market value.

Valuation Date (required if Clt Id, date) – The date of valuation that
corresponds to the collateral value. This field has to be populated but is only
used for residential property collateral.

Mortgage Inscription Amount: This is the amount of the mortgage

on the property. It represents a cap on recoveries for the property,
i.e. the recovery amount is the lower of the inscription amount and
the Property value after market value decline time multiplier and
reduced for any prior charge. In formulaic terms it’s the following; Minimum [
Mortgage Inscription Amount; Maximum [0; PropertyValuePostMVD * Collateral

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Value Multiplier – Prior Charge Amount]] This is used for both Residential and
Commercial properties. Note that if left blank the model assumes the mortgage
covers the entire property value.

Mortgage Mandate Amount: This is a specific features for

Belgium residential properties, where rather than enter a full
mortgage the lender is given a mandate which is the borrowers
consent for the lender to enter into a full mortgage. For residential
properties this amount is written to the input file for the Residential default model.
This field has not effect on commercial properties.

Location (Property) (required if Clt Id, string) – defines the location of the collateral
item. This is only used for residential property to determine
the applicable market value decline. For other asset types
the field has to be populated but is not used by the model.
The user can enter a recognised string from a list of valid
postcodes or European Data Warehouse Regions as shown
on the Criteria SME worksheet. When entering a postcode for regions other than the
UK only the first two digits are validated it is therefore important that leading zeros
are included. Note: PCM requires that the location be from the same country as that
of the borrower.

Prior Charge (required if Clt Id, double) – positive floating point number
that shows the amount of any prior charge secured by the same collateral
item. The prior charge amount will be deducted first from the collateral
proceeds and any remaining proceeds will be allocated to the recovery rate
of the securitised asset.

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D. Corporate SME Portfolio Data Mapping

This worksheet shows seven mapping tables which are used in conjunction with the
corporate SME specific asset inputs as described in the previous section.

PCM will check the mapping table for the specific borrower, loan or collateral input. If
the input is one of the key value in the mapping table the model will use the
corresponding mapped value in the analysis.

The validation routine in PCM will check the user inputs on the corporate SME
portfolio worksheet and list any unrecognised inputs in the respective mapping
tables.

Multiple entries of unrecognised values will only be shown once in the mapping
table. So the user only needs to map each value once to a corresponding value that
is recognised by PCM.

Note: The mapping is case sensitivity meaning that values that contain
characters in a different case and are otherwise identical are show multiple
times in the mapping table.

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E. Structured Finance Portfolio Inputs

Portfolio Inputs – Generic (described in section A above)

Asset Name; Asset ID; Issuer Name; Current Par Value; Current Balance Date;
Expected Maturity Date; Fitch Rating; Status Fitch; Alternate Ratings and Status
1&2; Default Probability Multiplier; Country; Recovery Rate Multiplier; Asset Specific
Recovery Rates; Amortisation Schedule

Portfolio Inputs – Structured Finance Specific

ABS Sub-Sector (required) – Different sectors are applicable to
structured finance assets,

Static Portfolio (required) – Is the portfolio static or revolving? If the

portfolio is revolving then for correlation purposes the latest year will be
used as the Origination year regardless of the setting of the next column.

Origination Year (required) – For structured finance assets it is necessary

to input the year of origination. Note that for a revolving asset (see above)
the most recent vintage will be assumed regardless of the year of
origination.

Seniority (required) – determines the applicable recovery

rate. Structured finance assets can be either senior or non
senior in the capital structure. For an asset to be senior it has
to be the last position with respect to loss allocation in the
capital structure.

Tranche Size (required) – For structured finance assets the recovery rates
are determined by the thickness of the tranche relative to the total size of
the structure. So this is the % of the total notional of the underlying asset
structure of this tranche.

Zero RR Rating (optional) – represents the rating of the next senior ranking
tranche in the capital structure. If left blank the default assumption is one
category above the fitch derived rating of the asset. The simulation will test
whether the senior rating has defaulted in which case the applied principal
recovery rate for the asset will be set to zero. This represents a sequential waterfall
structure typical for most structured finance transactions. In order to disable the zero
RR approach for a specific asset the user can select ‘NONE’ from the drop down
menu.

Page 24 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
F. REITS & CREL Asset Inputs Inputs

Real Estate Investment Trusts and Corporate Real Estate Loans can be entered on
the ABS portfolio sheet but have some unique characteristics

REITS are divided into either Commercial or Residential and use the Corporate
asset recovery table. Therefore the seniority drop down for a REIT is different from
other ABS asset types. The seniority classification for REITS is either ‘Strong
Recovery’ or ‘Moderate Recovery’. In order to get the drop down selection changed
to for REIT assets it is necessary to run the ‘Validate Portfolio’ function after the
other parts of REITS data have been entered.

Note that the following have no affect on REIT assets – Tranche Thickness and Zero
Recovery rate field. These will be ignored by the model if populated.

CREL is a single ABS subsector. CREL assets are treated like CMBs assets in the
model. The recovery is based on Tranche thickness and seniority. For CREL
tranches in excess of 50% of the respective capital structure the criteria applies
recovery rates commensurate with an RR3 recovery rating.

G. Public Finance Portfolio Inputs

Issuer Inputs – Generic (described in section A above)

Issuer Name; Issuer ID; OCU Selection;

Issuer Inputs - Public Finance Specific

Local Region (required) – For public finance entities, this
represents the local region of the underlying obligor. The local
region determines the country of the obligor. The current PCM
version has local regions for Germany and France only. For all
other countries the input for this field is the country name.

Issuer Type (required) – this distinguishes sovereign from municipal

issuers. This field is used to identify sovereign issuers included in the
portfolio. A default by the sovereign will impact all municipal issuers
from the same country, which are assumed to default with an
exposure set by the exposure at sovereign default (see below).

Asset Inputs – Generic (described in section A above)

Asset Name; Asset ID; Issuer Name; Current Par Value; Current Balance Date;
Expected Maturity Date; Fitch Rating; Status Fitch; Alternate Ratings and Status
1&2; Default Probability Multiplier; Recovery Rate Multiplier; Asset Specific Recovery
Rates; Amortisation Schedule

Asset Inputs – Public Finance Specific

Seniority Classification (required) – Describes recovery
expectation for the particular asset. The standard classifications

Page 25 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
are sovereign or municipal. Sovereign assets can be entered either under public
finance or corporate asset types. The sovereign recovery rates are the same for
sovereign assets regardless whether they are entered on the corporate or public
finance input page.

Exposure at Sovereign Default (optional) – This sets the proportional

amount of the notional exposure at the time of the sovereign default that is
assumed to default for each asset. If left blank the default value is 100%.
The percentage is applied to the outstanding balance of the asset at time
of default of the sovereign. This takes into account the amortisation
schedule of the asset.

Sovereign Inputs (required)

For each country represented in the portfolio
the user needs to supply the Fitch sovereign
rating and rating status fields. For issuer
characterised as sovereign on the issuer type
the model will populate this table based on
the ratings of the assets assigned to the sovereign issuer. for municipal assets in
jurisdictions for which the portfolio does not contain any sovereign assets the user
will have to provide the rating and rating status. The model will check upon validation
which jurisdictions are present and prepopulate the list of sovereigns for which the
rating information is required. Fitch Rating and Status Fitch inputs are the same as
described in section A – Generic Portfolio Inputs.

Methodology – Modelling Municipal Performance conditional upon sovereign

default
See criteria report for analysing portfolios of public sector assets.

For sub-national obligors, the rating or credit opinion assumes that the respective
sovereign has not defaulted. It is Fitch’s view that the default risk for PSEs
conditional on the default of the corresponding sovereign is significantly higher
compared to the default risk indicated by the rating or credit opinion. To reflect this,
the sovereign risk is modelled jointly with the PSE in PCM and the PSE performance
is conditional on the sovereign performance, as described above.

Implementation: PCM will map each municipal asset to a corresponding sovereign

asset based on the country derived from the local region input. If no sovereign asset
is included in the portfolio, PCM will create “dummy” sovereign assets with zero
exposure. The default time for the “dummy” assets will be modelled in the simulation
but no additional loss will be registered for these assets as they have a zero
exposure or notional.

When calculating the portfolio loss for each simulation trial the model will check the
default time for each issuer and the corresponding sovereign. The asset loss will be
computed as the higher of

Page 26 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
 (i) Asset loss at time of sovereign default using the sovereign recovery rate
times the exposure at sovereign default (EaSD)
(ii) Asset loss at time of municipal issuer default using the municipal recovery
rate.

With an EaSD equal to zero the sovereign would not affect the municipal
performance.

Page 27 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Input: Asset Class Parameters
A. Obligor Concentration Stress Inputs

The obligor concentration stress can be set for each of the four asset classes on the
individual parameter worksheet. The methodology is the same but the parameters
values vary between the four asset classes.

The obligor concentration parameters represent a stress on each of the three key
model parameters, which include default probability, recovery rate and correlation.
The user can select the obligors to which the concentration stress should be applied.
If the user has not selected any the model can automatically identify the largest risk
contributors by expected loss or loss given default or notional. PCM reports the
selected issuer under the asset outputs for the individual asset classes.

 PD Stress
The PD to be applied to all assets related to the largest risk contributors. The
PD stress is only applied if it leads to a higher one year pd than the one
derived by the model based on the pd inputs, which also takes into account
the pd multiplier.

Example 1
Assuming the asset rating is B minus which implies a one year pd of 8.35%
the model would override the rating using the large obligor stress rating, which
for SME assets is 25%, leading to a one year pd of 25.00%.

Example 2
If the same asset is subject to a pd multiplier of 400% (one year pd of
8.35%*400%=33.4%) the PD stress would not be applied since the PD stress
is less than the asset one year pd.

Example 2
If the same asset is subject to a pd multiplier of 200% (one year pd of
8.35%*200%=16.7%) the PD stress would be applied since the pd stress of
25.0% is greater than the asset one year pd. The pd multiplier would not be
applied to the stress rating and the pd used by the model would be 25.0%.

Page 28 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
  Correlation Uplift
This is a correlation stress applied between issuers subject to the stress.
Technically this is done by added an extra factor which only affects the
selected issuers. This means that the pair wise correlation between any pair
among the largest risk contributors is increased by correlation stress.

 Recovery Multiplier
The recovery rate multiplier is a factor that is applied to Fitch’s recovery
assumptions for all assets related to the selected issuers. Note this is NOT
applied to any fixed recovery rate or any asset specific recovery rates
assumption.

 Minimum Number of Issuers

This is the minimum number of issuers to be selected by PCM if no assets
have been selected by the user. PCM will select up to the minimum number of
issuers that are the largest in terms of the specified selection basis. For
example if the selection basis is expected loss and the minimum number is
set to 5, PCM will select the five issuers with the largest expected loss in the
portfolio.

 Issuer Size Threshold

In addition to the minimum number of issuers the user can specify a size
threshold in percent of the selection basis. PCM will select all issuers that
exceed the size threshold in term of the selection basis. For example if the
selection basis is notional and the size threshold is 50bps, than PCM will
select all issuers that exceed 50bps of the portfolio notional.

 Selection Basis
The issuer selection is done based on the selection basis, which can be either
expected loss (default rate times notional times one minus recovery rate),
notional or loss given default (notional times one minus recovery rate). This is
used in conjunction with the minimum number and the issuer size threshold.
 Aggregate Notional Threshold
Thus allows the user to set a notional threshold level. The Obligor
concentration stress will only be applied to the largest obligors selected based
on the minimum number of Issuers and selection basis, IF they in aggregate
exceed the aggregate notional threshold. For example if the aggregate
notional threshold is set to 10%, out of the selected OCU issuers the smallest
set of obligors which in aggregate represents 10% or less of the selection
basis will be removed again. Issuers will only be removed from the OCU
selection under the aggregate notional threshold if they represent less than
the Issuer Size threshold.

Page 29 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
B. Corporate Parameters Inputs

On this worksheet the user can specify the obligor concentration stress parameters
and correlation parameters for large corporate and small and medium sized
corporate (SMEs).

The correlation between issuers is calculated as the sum of the correlation uplifts for
each attribute the two issuers have in common:

A Global base correlation (from previous sheet above)

Regional correlation (from previous sheet above)
Country correlation (from previous sheet above)
Global Industry Sector
Global Industry
Local (Country) industry

The Fitch standard correlations for corporate assets can be found on the corporate
correlation worksheet. In the Fitch PCM the user is able to overwrite the individual
correlation uplifts. Since the allowed range for correlation is between 0% and 100%
the values entered and added up across the correlation dimensions should not
exceed 1 minus the OCU uplift.

The model validation will verify that no combination of correlation uplifts is greater
than 1 – OCU uplift. Only the largest combination causing this error will be
highlighted.

The user can reset the correlation values to the Fitch default assumptions by
selecting Toolbar/Portfolio/Reset All (see tool bar section).

The correlation between two corporate assets is calculated as follows:

Start with the Global Corporate Correlation percentage

 If two assets are in the same region add the regional uplift for this region
 If two assets are in the same country add the country uplift for this country

Page 30 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
  If two assets are in the same Global Industry Sector add the uplift for that
sector
 If two assets are in the same Global Industry add the uplift for this Global
Industry
 If two assets are in the same Local Industry sector add the uplift for this Local
Industry sector

Finally if the two assets are deemed to be in the OCU selection (manual or
automatic) add on the OCU uplift.

Page 31 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
C. ABS Parameters Inputs

On this worksheet the user can specify the obligor concentration stress parameters
and correlation parameters for structured finance assets. The obligor concentration
stress by default is disabled as per the criteria. However the user can override the
default values, with the exception of the correlation stress. This is because the
correlation levels for ABS are high even without a stress.

The correlation between two structured finance assets is calculated as follows:

Start with the Global ABS correlation
 If two assets are from the same country add the ABS country correlation.
 If two assets are in the same Global ABS sector add the Global ABS sector
uplift for this Global ABS sector.
 If two assets are in the same Global ABS sub sector add the Global ABS sub
sector uplift for that Global ABS sub sector
 If two assets are in the same Local ABS sector add the Local ABS sub sector
for that local ABS sector
 If two assets are in the same Local ABS sub sector add the uplift for that
Local ABS sub sector
 If two assets are in the same country, same sector and same vintage
grouping add the uplift for that country, sector and vintage grouping

Finally if the two assets are deemed to be in the OCU selection (manual or
automatic) add on the OCU uplift.

NOTE1: ABS ASSETS ARE ADDITIONALLY CORRELATED TO ALL BANKING

AND FINANCE CORPERATE ASSETS BY 15% (REGARDLESS OF COUNTRY)

Page 32 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
D. PF Parameters Inputs

On this worksheet the user can specify the obligor concentration stress parameters
and correlation parameters for public finance assets.

The correlation between two public finance assets is calculated as follows:

Start with the Global Base correlation
 If two assets are from the same region add the region correlation.
 If two assets are in the same country add the specific country uplift.
 If two assets are in the same local region add the Local Region uplift for this
Local Region.

Finally if the two assets are deemed to be in the OCU selection (manual or
automatic) add on the OCU uplift.

Page 33 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Outputs
A. Asset Properties Outputs

Final Rating - FDR – shows the final rating determined based on the
rating information for each asset and the FDR mode selected on the
parameter sheet.

One Year PD UnAdjusted – shows the one year pd applied by the model,
before the obligor concentration stress is applied.

Weighted Average Life PD UnAdjusted – shows the pd corresponding to

the Weighted average life of the asset.

AAA to B Recovery Rate Assumptions -

Shows the scenario recovery assumption
for each asset from B to AAA, taking into
account the fixed or asset specific
recovery assumptions (if any).

Page 34 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
 Base Case Recovery Assumption - Shows the base recovery
assumption (‘CCC’ rating level) for each asset, taking into account the
fixed or asset specific recovery assumptions (if any).

Weighted Average Life - Shows the weighted average life for each asset
in months, which is either calculated based on the amortisation schedule
for amortising assets or from the evaluation and expected maturity date.

Default Probability Adjustment - Shows the default probability

adjustment to be applied by the simulation. This takes into account the
default probability multiplier specified by the user as well as the default
probability multiplier as a result of soft credit events.

Expected Loss - The expected loss amount for each asset based on the
‘B’ recovery assumption. The expected loss is show in notional term and
does not incorporate obligor concentration adjustment.

OCU Selection - shows the OCU issuers selected by the model based on
their aggregated expected loss or those selected by the user.

For Structured Finance Assets Only

Zero RR Rating - shows the zero recovery rating applied by the model.

Page 35 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
B. Portfolio Properties and Stratification Outputs

PCM calculates portfolio properties and stratifications for each of the asset classes
as well as for the combined portfolio including all asset classes. These are show on
the following five worksheets

Worksheet – Corp Stats – for the Large Corporates portfolio

Worksheet – ABS Stats – for the structured finance portfolio
Worksheet – PF Stats – for the public finance (municipal) portfolio
Worksheet – Corp SME Stats – for the SME Corporate portfolio

Worksheet – Portfolio Stats – for the combined portfolio

Each worksheet contains a (i) portfolio summary table including average portfolio
statistics (ii) portfolio stratifications and (iii) a table showing the asset inputs and
asset properties (described in asset properties and portfolio inputs above) in for the
largest obligors, ordered starting with the largest.

The portfolio stratification are different for different asset type depending on the
relevant characteristics for each asset type, and include for example distributions by
base PD, base RR, industry, country, Weighted average life and rating among
others.

Note: All distributions are calculated a percentage of the portfolio notional.

Portfolio Summary Properties – Combined Portfolio

Summary Portfolio Properties ALL

Portfolio Notional Amount 417,600,000.0
Portfolio Notional Amount (ABS) 0.0
Portfolio Notional Amount (CORP) 400,000,000.0
Portfolio Notional Amount (SME) 17,600,000.0
Portfolio Notional Amount (PF) 0.0
Number of Issuers 120
Number of Assets 179
Max WA Life (month) 134.79
Ptfl WA Maturity (month from Eval. Date) 135.00
Portfolio Correlation Level 0.18
Ptfl WALife (month) 133.60
Amortising (% of Notional) 2.16%
Largest Issuer (% of Notional) 2.87%
Largest 10 Issuers (% of Notional) 25.38%
Number of OCU Issuers 39
Foreclosed 2400000
PCM Version 2.5.0

Page 36 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
(Note these values exclude inner CDO’s in a CDO^2 structure.)

The portfolio properties calculated by the PCM include the following:

1. Portfolio Notional Amount – is the sum of the par value of all assets in the CDO
portfolio.

2. Portfolio Notional Amount (ABS) – is the sum of par value of all assets in the ABS
part of the portfolio.

3. Portfolio Notional Amount (CORP) – is the sum of par value of all assets in the
CORP part of the portfolio.

4. Portfolio Notional Amount (SME) – is the sum of par value of all assets in the
SME part of the portfolio.

5. Portfolio Notional Amount (PF) – is the sum of par value of all assets in the PF
part of the portfolio.

6. Number of Issuers – The number of individual obligors / issuers in the portfolio.

7. Number of Assets – The total number of individual asset rows in the portfolio.

8. Max WA Life (months) - is equal to weighted average life the longest-dated asset
in the portfolio.

9. Ptfl WA Maturity (months from Eval. Date) - is the number of months between the
evaluation date and the weighted average maturity date calculated as the
average of the individual maturity date of each asset weighted by the asset
notional.

10. Portfolio Correlation Level is the weighted average pair-wise correlation of all
assets in the portfolio.

11. Ptfl WALife (months) - is the average of the weighted-average lives of all assets
in the CDO weighted by the assets’ par value. The portfolio WALife determines
the risk horizon and hence the significance level for the Rating Default Rate and
Rating Loss Rate.

12. Amortising (% Notional) – is the proportion of the portfolio that is amortising either
following a standard amortisation profile or a user defined amortisation profile.

13. Largest Issuer (% Notional) – show the proportion of the notional exposure of the
largest obligor (same as issuer) of the overall portfolio notional.

14. Largest 10 Issuers (% Notional) – show the proportion of the notional exposure of
the ten largest obligors (same as issuer) of the overall portfolio notional.

15. Number of OCU Issuers – show the number of obligors selected for the obligor
concentration uplift.

Page 37 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
16. Foreclosed - is the sum of par value of all assets which are designated
foreclosed. For SME assets these are asset greater than 365 delinquent and for
the other asset classes any asset rated ‘Dsf’.

17. PCM Version – is the current PCM version number.

Page 38 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Portfolio Summary Properties – Large Corporate Portfolio

Summary Portfolio Properties L Corporates

Portfolio Notional Amount 400,000,000.00
Number of Issuers 76
Number of Assets 91
Portfolio WA Rating - WARF B
Portfolio WARating (numerical) - WARF 33.02
CLO Weighted Average Recovery Rate (WARR) 70.05
Ptfl WALife (month) 135.00
Max WA Life (month) 135.00
Portfolio Correlation Level 6.799%
Ptfl WA Maturity (month from Eval. Date) 135.00
WA One Year PD 6.10%
Amortising (% of Notional) 0.00%
Largest Issuer (% of Notional) 3.00%
Largest 10 Issuers (% of Notional) 26.50%
Largest Industry (by # Issuers) business services 15
Number of OCU Issuers 5
Floating Rate (% Current Balance) 46.00%
Foreclosed 0
PCM Version 2.5.0

The ADDITIONAL portfolio properties calculated by the PCM for large corporate
assets include the following:

1. Portfolio WA Rating - WARF – The alphabetic representation of the average

rating of the portfolio weighed by asset par value and the Fitch 10 year PD
assumption.

2. Portfolio WA Rating (numerical) - WARF – The numeric representation of the

weighted average rating.

3. CLO Weighted Average Recovery Rate (WA RR) – the recovery rate entered in
the “Recovery Estimate” column in the Corporate Portfolio sheet weighted by the
asset par value.

4. WA One Year PD – the average one year PD assigned by PCM weighted by the
asset par value. The one year PD does not include the OCU PD stress.

5. Largest Industry (by # Issuers) – shows the largest industry based on Fitch
classification and number of obligors in that industry.

6. Floating Rate (% Current Balance) – the proportion of the Corporate Portfolio

which pays interest at a floating rate.

Page 39 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Portfolio Summary Properties – Small and Medium Sized (SME) Corporate
Portfolio

SME

Sum of Current Loan Balance 17,600,000.0

Number of Borrowers 44
Number of Loans 88
Ptfl WALife (month) 101.68
Max WA Life (month) 130.00
Portfolio Correlation Level (PCL) 41.051%
Ptfl WA Maturity (month from Eval. Date) 130.00
Ptfl WA One Year PD 35.36%
1-<30 Delinquencies (% Current Balance) 0.00%
30-<60 Delinquencies (% Current Balance) 2.27%
60-<90 Delinquencies (% Current Balance) 2.27%
90-<365 Delinquencies (% Current Balance) 22.73%
365+ Delinquencies (% Current Balance) 0.00%
Floating Rate (% Current Balance) 79.55%
Spread of Floating Rate Assets % 2.42%
Amortising (% Current Balance) 51.14%
Largest Obligor (% Current Balance) 2.27%
Largest 10 Obligors (% Current Balance) 22.73%
Obligors >50bps (%) 100.00%
WALTV - Mortages (%) (ex. Collateral multiplier) 121.65%
1st Lien Mortgage (%) (ex. Collateral multiplier) 60.23%
Largest Industry banking and finance
Largest Industry % 18.18%
Largest Industry (by # Borrowers) banking and finance 16
Largest Country portugal
Largest Country % 31.82%
Real Estate & BM % 6.82%
Number of OCU Borrowers 34
Foreclosed 2,400,000
WA Delinquencies >12 months 465
ResiEMEA Version
PCM Version 2.5.0

The ADDITIONAL portfolio properties calculated by the PCM for SME corporate
assets include the following:

1. 1-<30 Delinquencies (% Current Balance) – The proportion of the portfolio by

notional amount that is delinquent up to but not including 30 days.

2. 30-<60 Delinquencies (% Current Balance) – The proportion of the portfolio by

notional amount that is delinquent between 30 and 60 days.

3. 60-<90 Delinquencies (% Current Balance) – The proportion of the portfolio by

notional amount that is delinquent between 60 and 90 days.

Page 40 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
4. 90-<365 Delinquencies (% Current Balance) – The proportion of the portfolio by
notional amount that is delinquent between 90 and 365 days.

5. 365+ Delinquencies (% Current Balance) - The proportion of the portfolio by

notional amount that is delinquent by 365 days or more.

6. Floating Rate (% Current Balance) – The proportion of the portfolio by notional

amount pays interest at a floating rate.

7. Spread of Floating Rate Assets % - The weighted average spread of those

assets that pay a floating rate.

8. Obligors > 50bps (%) – The proportion of the assets by notional amount that
makes up more than 50 basis points of the portfolio.

9. WALTV – Mortgages (%) (ex. Collateral multiplier) – The weighted average loan
to value of assets backed by either residential or commercial collateral type.

10. 1st Lien Mortgage (%) (ex. Collateral multiplier) – The proportion of the portfolio
backed by collateral that is first lien collateral.

11. Real Estate & BM (%) – The proportion of the portfolio by notional amount that is
backed by the Fitch Industry Real Estate or Building Materials.

12. WA Delinquencies >12 months – The weighted average number of days

delinquent of foreclosed assets. For SME foreclosed assets are those delinquent
for more the 365 days.

13. ResiEMEAVersion – if the ResiEMEA has been used to calculate recoveries on

those loans backed by residential collateral the version number of the model
appears here.

Page 41 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
C. Analytic Output

The Simulation Summary displays the main model outputs including the rating
default rate (RDR), the rating recovery rate (RRR), the rating loss rate (RLR). The
outputs will be time stamped and include the version number of the model used.

There are two sets of results “Master” in which the portfolio has had foreclosed
assets removed and the monte carlo simulation run with only performing assets. The
second set of results includes foreclosures.

Page 42 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
The RDR and RLR are derived as the percentile (confidence level)of the respective
distribution, corresponding to the CDO default rates and the portfolio weighted
average life (risk horizon). Note that if no value in the default and loss distribution
exactly matches the specific percentile, then the value with a percentile higher than
but closest to the percentile of the rating level is used.

Confidence Level (CL) – Shows the percentile for each of the rating levels. This is
derived as one minus from the default probability corresponding to the portfolio
weighted average live.

Rating Default Rate (RDR ) – Shows the value that corresponds to the percentile of
the notional default distribution, which is derived as the exposure at default. The
exposure at default takes into account the initial par value as well as the amortisation
schedule (if specified) but excludes recovery rates.

Rating Loss Rate (RLR) – Shows the portfolio loss for the particular credit portfolio
in the respective rating scenario, taking into account Fitch’s recovery rate
assumptions for each asset. The RLR is gross of any structural features such as
excess spread and is derived from the portfolio loss distribution in the same way as
the RDR.

Rating Recovery Rate (RRR) – The RRR equals one minus the RLR divided by the
RDR.

DEFAULTS: This shows the proportion of the current balance considered in default
and the corresponding expected recovery rate as well as expected loss rate. These
are based on the base case recovery expectations. Generally assets are considered
defaulted if the one year probability of default assumption is 100%. For rated assets
that would include assets rated ‘D’ or assets with default probability multipliers that
result in a one year PD of 100%. For SME assets which are unrated this is based on
the one year PD input (considers the mapping), the delinquency status and the
default probability multiplier.

Foreclosed RRR – This is the RRR for the foreclosed portion of the portfolio. For
SME CLOs the model considers all assets foreclosed, for which the Days delinquent
is greater than 365. Note that the amount of assets considered foreclosed is a
subset of the defaulted assets. For example for SME loans the model considers
asset that are 90 days or more delinquent to be defaulted but not necessarily
foreclosed. For all other sectors assets are considered foreclosed if the month one
PD is 100%. This is typically the case if the rating is set ‘D’ or in case of Structured
finance portfolios ‘CC’ and ‘C’ which are assumed to have defaulted. For these
sectors the amount of defaults would typically be the same as the amount in
foreclosure.

Page 43 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
D. Cashflow Model Assumptions – Corporate and SME CLOs only

The simulation summary sheet also contains inputs and outputs which feed into the
Cashflow Model.

The PCM outputs that are already used for the Cash Flow Analysis include the RDR
and RRR, the amortisation schedule, the interest rate and margin tables. The
additional inputs needed to setup the cash flow analysis are cure rates, recovery
vectors, default timing vectors and prepayments. These were added to the
simulation summary sheet so the user can specify them for SMe CLOs as well as
Corporate CLOs. The values are saved to the XML file, which than contains all
relevant parameters to completely specify the Asset model for the cash flow
analysis.

The user can either manually populate the additional values or alternatively the
model can automatically calculate the standard assumptions based on published
criteria. The option Generate CLO Cash Flow Model Inputs will first validate the
required inputs. Any incorrect or missing values will be highlighted.

Page 44 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Cured RDR (SME CLOs only)

Required Inputs for Standard Assumptions as per the SME CLO Criteria:
 Cure Rate – here the user inputs the proportion of defaulted assets they expect
to be cured in the base case.
 CR Tiering – the cure rate is tiered by the percentages entered in this column.
For example at the ‘AAAsf’ level only 15% of the 40% cure rate is applied.
The user can either enter their own tiering or select “Load Standard SME
Assumptions” from the “CFM Tools” menu which will load the tiering as
specified in the SME Criteria.
Outputs:
 Cured RDR – the cured RDR is derived from the tiered cure rates and the RDR
(not including foreclosures).
For CLOs the model automatically sets the cure rate to zero so the cured RDR is the
same as the RDR produced by PCM.

Recover Vector ( both CLOs and SME CLOs)

PCM computes the standard recovery vector as specified in the SMe CLo criteria
and the CLO criteria. The user can override the standard assumptions.

Page 45 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Inputs:
 Time To Recovery – the assumed time to final recovery in years. For example
if the number of years entered is five it is assumed that all recoveries possible
for a given asset are distributed over five years as per the SME criteria.
Outputs:
 Recovery Vector – the proportion of recoveries received at that time. The tool
calculates a linear recovery vector so if we assume a five year time to
recovery at each of the five points in time 20% recovery will be received. The
user can overwrite this table.
 Time Recovery Received – the number of months after which recovery outlines
in the Recovery Vector table is received. The tool calculates a linear recovery
vector so if we assume a five year time to recovery 20% of the RRR will be

Page 46 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
 received after 12 months and another 20% after 24 months, up until five
years.

Default Timing Vector –(both CLOs and SMEs CLOs)

PCM computes the standard default timing assumptions as specified in the SMe CLo
criteria and the Corporate CLo criteria. The user can override the standard default
timing assumptions.

Inputs (SME CLOs only):

The Base default timing for SME CLOs is derived by PCM based on the average
timing of defaults during the simulation. The base default timing if largely a function
of the default term structure. Stress one and stress two default timing assumptions
are derived from the base default timing by redistriubting some of the first year
defaults proprotionately to the following years as specified in the SME CLO criteira.
The year 1 and year 2 Haircut inputs determine the amount of defaults to be
redistributed. For example a haircut of 50% means that half the year one proportion
will be redistributed to the remaining years.
Note: The columns titled Months shows the starting months for the relevant default
proportion.

For CLOs the Stress 1 and Stress 2 inputs should be left blank. The outputs will
reflect the default timing assumptions for Front, Mid and Back Loading as specified
in the Corporate CLO Criteria.

Page 47 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Prepayments (both SME and Corporate CLOs)

PCM computes the standard prepayment assumptions as specified in the SMe CLo
criteria. The user can override the standard prepayment assumptions.

Required Inputs for Standard Assumptions as per the SME CLO Criteria:
 Base Case – the base case prepayment assumption corresponding to a ‘Bsf’
scenario.
 Stressed Case – the stressed case prepayment assumption corresponding to a
‘AAAsf’ scenario.
Ouput Standard Assumptions:
 Prepayments – the prepayment assumptions at each ratings level are
computed by linearly interpolating between the “Stressed Case” and “Base
Case” by notches.

Note: Low prepayment assumptions are not shown as they are assumed to be zero
at all rating levels as per the SMe CLO criteria.

For corporate CLOs the standard assumption is zero prepayments. The model will
populate the prepayment vector with Zeros if the CPR assumptions are left blank.

Page 48 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
E. Distribution Output

Column A/B – Distribution of the number of defaults

Column D/E – Distribution of the notional amounts defaulted

Column G/H – Loss distribution in AAA stress scenario due to tiered recovery rate
assumptions

Column J/K – Loss distribution under AA stress scenario due to tiered recovery rate
assumptions

Column M/N – Loss distribution under the BBB stress scenario due to tiered
recovery rate assumptions

Page 49 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Assumptions – Criteria PD, Criteria RR, Criteria
SME
Worksheets: Criteria PD, Criteria RR, Criteria SME
These three worksheets DISPLAY the key assumptions for default rates, recovery
rates and mapping tables. These can not be changed by the user and are for display
only. PCM does not read the data from these worksheets.

Example Criteria PD:

The first table shows Fitch’s default rate assumptions for corporate, structured
finance and public finance assets on a yearly basis up to a maximum tenor of 30
years. The default rates are displayed on a cumulative basis.

The second table shows the CDO target default rates for all asset classes, which
except for AAA and AA are equal to the corporate default rate assumptions. The
CDO target default rates together with the portfolio weighted average life are used to
determine the RLR and RDR outputs.

Page 50 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Page 51 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Tools & Functionality: CDO^2
PCM supports a ‘look through’ analysis for corporate CDO squared structures. The
‘look through’ analysis requires additional inputs in respect of the ‘inner’ CDO
portfolios, which can be entered on the corporate portfolio worksheet.

To make this section of the Corporate Portfolio sheet visible select toolbar option
Show, [+] CDO Squared

For a CDO squared structure the same asset and issuer attributes as described for a
single tier CDO structure in Corporate Inputs have to be entered for each corporate
reference name, whether it is reference by the master CDO or any inner CDO. The
field ‘Par Value Master’ represents the notional reference by the master CDO of the
specific corporate name. For names that are only referenced in the inner CDOs this
field should be set to zero.

Page 52 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
The additional information with regards to each of the inner CDOs includes the
following:

 Maturity Date – Date set later than the CDO evaluation date. Each name in
the inner CDO portfolio has the same maturity date.
 Attachment Point – in notional terms
 Detachment Point - in notional terms
 Reference Notional for each of the corporate names

In the PCM model the default times for each of the specified corporates and for each
simulation scenario will compute the loss incurred by each of the inner CDOs. The
results will be included in the default and loss distribution as well as the RDR and
RLR.

Note: The inner CDOs are NOT considered in the default timing output or the
calculation of the portfolio properties as described above. The properties are only
calculated for the master portfolio excluding the inner CDOs.

Page 53 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Tools & Functionality: Structural Analysis
The structural analysis tool allows users to compare available credit enhancement
including subordinated tranches as well as the reserve fund against loss rates at
different rating levels. The tool estimates the amount of negative carry due to
defaults as well as losses for each tranche taking into account non deferrable junior
tranches. The approach is based on a very simplified cash flow approach.

A. Inputs

RDR, RRR & RRR – to be used in the structural analysis.

Cure Rate 40.00%

Percentage of Defaulted Assets in PCM % 15.00%
Weighted Average Recovery Lag (years) 4.00
Weighted Average Life 5.60
Total Risky Assets (Portfolio Bal including defaults) 212,000,000.00
Reserve Fund 10,000,000.00
WAL Multiplier for Cost of Carry 3.00
Set off Loss (% of Risky Assets) 5.00%
Com m ingling Loss (% of Risky Assets) 5.00%

Cure Rate – The percentage of defaulted loans expected cure and become
performing again. It is used to calculate cured RDRs and cured RLRs.

Page 54 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Percentage of Defaulted Assets in PCM – The percentage of defaulted assets
included in the portfolio input into PCM. This is used to carve out the assets that are
already defaulted when applying the cure rate to the RDR and RLR.

Weighted Average Recovery Lag (years) – The average length of time taken to
receive recoveries. A linear recovery vector is assumed therefore if it takes five
years to receive all recoveries on a loan 2.5 years is entered as the weighted
average recovery lag. The recovery lag is used to estimate the amount of negative
carry due on the notes backed by non performing collateral until recovery proceeds
are used to repay the notes.

Weighted Average Life (years) – The weighted average life of the transaction. This
is calculated by PCM on the various “Stats” sheets. It is used in conjunction with the
multiplier (see below) to calculate the negative carry due on the notes which remain
backed by non performing collateral after recovery proceeds have been used to
repay some of the notes.

Total Risky Assets – The portfolio balance including defaults, which is used to
compute the available credit enhancement. The percentages of credit enhancement,
default rate and loss rate need to be based on the same portfolio notional.

Reserve Fund – remaining reserve fund amount.

WAL Multiplier for Cost of Carry – Any tranche that remains outstanding after all
recoveries are received may be subject to additional carry if the remaining
amount of performing assets does not cover all the non-deferrable junior
tranches. The multiplier is used to determine the length of time the junior tranches
remain outstanding.

Set off Loss (% of Risky Assets) – The percentage of portfolio lost to set off, it is
applied to the “RDR post Cure” and the “RLR post Cure”. It is only applied to the
rating scenarios for which the servicer is assumed to default, as set in the “Servicer
Default” column.

Commingling Loss (% of Risky Assets) – The percentage of portfolio lost to

commingling funds in the servicer account, it is applied to the “RDR post Cure” and
the “RLR post Cure”. It is only applied to the rating scenarios for which the servicer
is assumed to default as set in the “Servicer Default” column.

Page 55 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Interest Rate Assumptions (IR) – The rate used to calculate the negative carry
amount for each scenario.

CR Tiering – Represents the proportion of the cure rate to be applied in each rating
scenario.

Servicer Default – Choose “Yes” or “No” to select the rating stresses under which
the servicer should be assumed to default. A servicer default would lead to the
application of the commingling and set loss.
Best Pas s - Deferral Of Best Pass Rating - No
Paym ent Order Identifier Current Balance Fixed/Floating Spread/Coupon Asse t CE RE Defers? - Yes/No
All Notes Deferral Triggers
1 A 120,000,000.00 Floating 2.00% No
2 B 25,000,000.00 Fixed 10.00% No
3 C 20,000,000.00 Floating 3.00% Yes
4 D 15,000,000.00 Floating 4.00% Yes

Total Balance

Payment Order – The order of seniority of the notes, the most senior should be at
the top starting with one. For pro rata ranking notes please enter the same payment
order value, for example if class A1 and A2 rank pro rata at the top of the capital
structure the user should enter a 1 for both notes.

Identifier – A unique identifier for the given class.

Current Balance – The current outstanding balance of the note.

Fixed/Floating – Specify whether the note has a fixed or floating interest rate.

Spread/Coupon – Enter the spread or coupon of the note this is only used if the
note has a fixed interest rate.

Defers? – Yes/No – This indicates whether the terms and conditions of the note
allow the interest to be deferred and paid at a later date. Non deferrable junior
ranking notes will be considered when calculating the amount of carry interest for
senior notes. For example if class B is set to no (cannot defer) than class A is only
redeemed iffull interest has been paid to class B. The calculation therefore will
allocate principal proceeds (recoveries and collections) to pay interest on class B
before principal on class A.

B. Outputs

Tiered CRs – Tiered cure rates are calculated from the input “Cure Rate” and the
“CR Tiering” for each rating stress.

RDR Post Cure & RLR Post Cure – These columns show the resulting default and
loss rate after accounting for cures as well as taking into account losses due to
setoffs and commingled funds.

Page 56 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Tranche Size after use of Reserve for Provisioning – The tranche balance after
deducting the lower of the reserve fund and the percentage of defaulted assets in
PCM. It is assumed that the reserve fund can be used to provision for defaulted
assets.

Performing Balance – The proportion of performing loans after the cured default
rate is applied.

Carry Due on Tranche and all Tranches Senior Due to Default (CDRRSDD) –
The cost of carry on the amount a given tranche plus all senior ranking tranches that
are not covered by the performing balance for the duration of the recovery lag.
These results take into account whether a tranche pays a fixed or floating rate.

Recoveries – The recoveries received on the defaulted loans (Cured RDR minus
Cured RLR).

Outstanding Notes Plus Senior Ranking Debt After Recoveries (ONPSRDR) –

The remaining tranches’ outstanding balance plus all senior ranking debt after
accounting for the application of the reserve fund, the CDRRSDD, and the
recoveries received on the defaulted loans.

Carry on Remaining Notes and Senior Notes That Exceed the Remaining
Performing balance – The ONPSRDR is broken up into the amount of each class
plus all senior tranches that is not covered by the performing balance and therefore
has to be carried. The carry is higher for junior tranches with more senior debt
outstanding as the carry on the senior debt reduces the amount of recovery available
to redeem the notes. These results take into account whether a tranche pays a fixed
or floating rate.

Page 57 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
Asset CE – Credit enhancement calculated based on the tranche notional,
expressed as percentage of total risky assets. This takes into account the reserve
fund.

Best Pass – Optimal Deferral Triggers – The best pass rating scenario for a note
accounting for carry due to default and assuming all junior notes can defer interest
the moment there is an interest shortfall. In other words principal funds are applied
first to redeem the tranche or any senior tranches before paying interest on junior
ranking tranches.

Best Pass – No deferral of non-deferrable notes– The best pass rating scenario
taking into account cost of carry of non-deferrable junior ranking notes based on
column “Defers?”. Here principal funds are first used to pay interest on junior ranking
non deferrable notes before principal to the note and any senior ranking notes.

RE – Recovery Estimate to the nearest five percent and capped at 100%. The
calculation is based on the amount recovered under a B rating scenario.

Page 58 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
 Installation
A. System Requirements

PC
 1GB Memory minimum
 1.2+ GHz Processor Speed

Operating System
 Windows NT, XP or Vista, Windows 7

 Software
 Excel 2003 or Excel 2007
 Office 2003 Update; Redistributable Interop Libraries
 Windows .NET 3.5 (available free from Microsoft web site)
 Multilingual User Interface Pack for your version of Office (if not English language
selected).

 Other Requirements
 You might need to have administrator rights for the PC to which you are
downloading Fitch Ratings Portfolio Credit Model. If you do not have these rights,
please contact your IT department.

B. Installation Checklist

Before installing and or downloading the Fitch Ratings Portfolio Credit Model you
must:
 meet the minimum requirements to access and install the model; and
 Probably have administrator rights to install the Fitch Ratings Portfolio Credit
Model.

C. Downloading the Fitch Ratings Portfolio Credit Model

Before you can download and install the Fitch Ratings Portfolio Credit Model you
must have access to the Internet. To download the Fitch Ratings Portfolio Credit
Model:
1. open your Internet browser;
2. type www.fitchratings.com in the Address field. The Fitch Ratings website
appears;
3. Select Strutured Finance from the menu (accessed by clicking in the top left of
the page)
4. Select CLO & Structured Credit from the table on the right.
5. In the Resources table on the right of the page select the link Portfolio Credit
Model.
6. a Fitch Ratings Portfolio Credit Model description and requirements page
appears;

Page 59 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
7. Click the Download link for the Model
8. the Fitch Ratings Portfolio Credit Model Program Agreement page appears;
9. click ‘I Accept’ if you agree to the terms to download the model. If you do not
agree the terms indicated, you will not be able to download the application.
a File Download window appears;
10. click the Save this file to disk radio button;
11. click OK. A Save As window appears;
12. select a folder location for the self extracting executable; and
13. click Save. The files are saved to the selected location.

D. Installing the Fitch Ratings Portfolio Credit Model

Once you have downloaded the file you must install the application. To install the
model:

1. locate and open the self extracting application file you saved to your PC;
2. double-click the FitchCDOModel.msi file;
3. the install process will run, you will have to confirm acceptance of the licence
agreement for a second time;
4. click Next.
5. an Extracting Files window may automatically appear. A Setup Status window
appears. A message window may appear indicating the file process may take
some time.
6. click Finish.

Please Note: The Fitch Ratings Portfolio Credit Model’s installation wizard creates a
subfolder saved in the location specified during installation. The subfolder only
contains the latest version of the Fitch Ratings Portfolio Credit Model. Subsequent
installations of Fitch Ratings Portfolio Credit Model will overwrite all files (including
previous versions of the model) in the specified folder to assure that users have the
latest version. For this reason, no working files should be stored in the specified
folder.

E. Reinstalling the Fitch Ratings Portfolio Credit Model

When the Fitch Ratings Portfolio Credit Model application files are updated you must
remove and reinstall the application.

1. Download the Fitch Ratings Portfolio Credit Model from the Fitch Website.
2. Double-click application.
3. Select the Remove to reinstall the application and click Next. Follow the on
screen instructions to complete reinstallation.

F. Downloading and Installing the Fitch Ratings ResiEMEA Model

Before you can download and install the Fitch Ratings ResiEMEA Model you must
have access to the Internet. To download the Model:

Page 60 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020
1. open your Internet browser;
2. type www.fitchratings.com in the Address field. The Fitch Ratings website
appears;
3. Select Strutured Finance from the menu (accessed by clicking in the top left of
the page)Select RMBS from the table on the right.
4. In the Resources table on the right of the page select the link ResiEMEA.
5. ResiEMEA Model description and requirements page appears;
6. Click the Download link for the Model
7. the Fitch Ratings Program Agreement page appears;
8. click ‘I Accept’ if you agree to the terms to download the model. If you do not
agree the terms indicated, you will not be able to download the application.
a File Download window appears;
9. click the Save this file to disk radio button;
10. click OK. A Save As window appears;
11. copy the content of the compressed zip file to your local hard drive;

Page 61 of 61 Fitch Ratings Portfolio Credit Model Users Manual © Copyright Fitch Ratings Ltd 2020