Fitch Assigns Swiss Car ABS 2016-1 AG Expected Ratings
Class A notes, due April 2026: 'AAA(EXP)sf'; Outlook Stable
Class B notes, due April 2026: 'AA+(EXP)sf'; Outlook Stable
Subordinated loan, due April 2026: not rated
The transaction is a securitisation of auto lease receivables originated to Swiss companies and individuals by AMAG Leasing AG (ALAG). The transaction portfolio almost exclusively comprises lease contracts backed by vehicles of the VW group.
The class A and B notes are denominated in Swiss francs and pay fixed interest, which is paid out annually during a two-year revolving period. The notes' coupons will double when the transaction enters amortisation. Since the receivables also pay fixed interest in francs, there are no interest rate or currency mismatches.
The final ratings are contingent upon the receipt of final documents conforming to the information already received and a satisfactory review of final legal opinions to support the agency's analytical approach.
KEY RATING DRIVERS
The securitised lease payments include the residual value (RV) at contract maturity. The RV portion can increase up to 52.5% of the overall pool during the replenishment period. Dealers are obliged to pay the contractual RV to the issuer. However, a dealer default would expose the issuer to the risk of RV losses when used vehicle prices decline. Fitch assumes 'AAA' RV losses of 19.7% and 'AAA' instalment losses of 5.5%.
The securitised portfolio comprises almost exclusively VW vehicles. About 15% of vehicles in the pool (by volume) were reported as affected by VW's nitrogen oxide (NOx) emission test manipulation. Fitch applied a reduction of 10% to the base case recovery rate and RV base case sales proceeds, to address the potential impact on used car prices.
Fitch considers the risk of a pool migration towards more high-risk characteristics during the revolving period as moderate, as replenishment criteria are close to the initial pool's attributes. Nevertheless, the replenishment period exposes investors to an increased risk of adverse economic developments and a decline in used car prices, as considered in Fitch's stressed default and recovery expectations.
ALAG will also service the portfolio from closing. A replacement servicer facilitator is contracted and will use best efforts to appoint a substitute servicer should ALAG fail to perform its duties. The available reserves provide adequate liquidity to bridge the time required to find a replacement servicer if needed.
RATING SENSITIVITIES
Fitch tested the rating sensitivity of the notes to various scenarios, including an increase in the base case default rate or a decrease in the base case recovery rate for the portfolio, combined with an increase in market value stresses for used vehicles returned at lease contract maturity. The model-implied sensitivities indicate that a joint increase in the base case default rate and market value stresses by 50%, together with a decrease in the base case recovery rate by 50%, may result in a downgrade of the class A notes to 'AA-sf' and the class B notes to 'Asf'.
TRANSACTION CHARACTERISTICS
The transaction features a revolving period of up to two years. During the replenishment phase, the issuer will apply collections from the receivables portfolio to purchase additional assets from ALAG, subject to certain replenishment criteria being met.
The total eligible pool as of 31 January 2016 totalled CHF1.6bn and comprised 68,960 leases to 65,333 customers. RVs represent 45% of the initial pool. The portfolio is well distributed across Switzerland and shows no significant single-lessee concentrations, with the largest 10 customers having a total share of 0.28%.
The final pool will be selected from the eligible pool and Fitch expects the final pool to have comparable characteristics as the eligible pool.
DUE DILIGENCE USAGE
Fitch received a third party assessment conducted on the asset portfolio information prior to transaction announcement.
DATA ADEQUACY
At the last operational review, Fitch conducted a review of a small targeted sample of ALAG's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Fitch was also provided with the volume of vehicles in the pool affected by VW's alleged emission manipulation. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis:
- Line-by-line information on the transaction portfolio, including pool stratifications.
- Origination volumes since the beginning of 2009 for all sub-portfolio combinations of private/commercial lessees and new/used vehicles, and detailed origination characteristics such as the development of loan-to-value ratios and contractual RV bands.
- Dynamic, quarterly delinquency data from January 2009 for all sub-portfolio combinations of private/commercial lessees and new/used vehicles.
- Static, quarterly default and recovery vintages since the beginning of 2009 for all sub-portfolio combinations of private/commercial lessees and new/used vehicles.
- Dynamic, quarterly prepayment data from January 2009 for all sub-portfolio combinations of private/commercial lessees and new/used vehicles.
Fitch has also used performance data from Fitch-rated Swiss peer transactions, and from peer originators in its analysis to supplement the data provided by the originator.
REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the presale report, available at www.fitchratings.com. In addition, please refer to the special report "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions" dated 2 March 2016 available on the Fitch website.
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