Rating Action: Moody’s assigns definitive rating to Auto Loan ABS Program 2101 Series
Global Credit Research – 13 Jan 2021
JPY612 million in debt securities affected
Tokyo, January 13, 2021 — Moody’s SF Japan K.K. has assigned a definitive rating to Auto Loan ABS Program 2101 Series. This transaction is backed by auto loan receivables.
The complete rating action is as follows:
Transaction Name: Auto Loan ABS Program 2101 Series
Class: ABL Rating: Aaa (sf) Issue Amount: JPY612 million Interest Rate: Fixed
Closing Date: January 13, 2021
Final Maturity Date: March 18, 2027
Underlying Asset: Auto loan receivables
Total Amount of Receivables: JPY757,944,056 (JPY740,819,304 in principal)
Loan Fund Trustee/Money Fund Trustee: Mizuho Trust & Banking Co., Ltd. (“Mizuho Trust”)
Arranger: Mizuho Trust RATINGS RATIONALE
The Loan Fund Trustee enters the affiliated auto loan program agreement with the affiliated financial institution, acting as originator and initial servicer. The affiliated auto loans are guaranteed by the affiliated financial institution.
The Loan Fund Trustee extends the affiliated loan to obligors based on the affiliated auto loan agreement.
The originator entrusts cash to the Money Fund Trustee to enhance the credit and the liquidity of the Auto Loan Fund, and receives the Money Fund Beneficial Interest.
The Money Fund Trustee entrusts the cash, in an amount equal to the Money Fund Beneficial Interest, to the Loan Fund Trustee, and receives the Class 2 Beneficial Interest.
The originator entrusts cash to the Loan Fund Trustee and receives the Class 1 Beneficial Interest. The Loan Fund Trustee receives a limited recourse loan (the ABL) from the ABL investor, and redeems the Class 1 Beneficial Interest in full.
Credit enhancement is provided by the senior/subordinated structure and available excess spread. Subordination (excluding liquidity reserves) comprises approximately 21.1% of the total outstanding amount of the ABL and the Class 2 Beneficial Interest.
The ABL is redeemed on a monthly pass-through basis. The Class 2 Beneficial Interest is partly redeemed to the extent that the required enhancement is maintained.
If any early amortization events occur, the dividend waterfall to the Class 2 Beneficial Interest is suspended, and excess spread is used to redeem the ABL of this series (Auto Loan ABS Program 2101 Series). Auto loans’ interest and principal collected from Auto Loan ABS program series which have their ABLs already fully redeemed will be distributed to the outstanding ABLs from other Auto Loan ABS program series. This cross collateralization mechanism is implemented via the Money Fund, which is held by the Money Fund Trustee.
Early amortization events include a servicer replacement event occurring, such as the occurrence of an uncured principal deficiency ledger (PDL) or the bankruptcy of the affiliated financial institution.
If any servicer replacement events occur, the trustee can dismiss the servicer and have a back-up servicer take over the servicing operations. A back-up servicer is appointed at closing. In preparation for servicer replacement, liquidity is provided in the form of a cash reserve at closing. This reserve covers several months of interest payments on the ABL, as well as fees relating to initial and ongoing back-up servicer operations.
Commingling risk is covered in full by the Class 2 Beneficial Interest.
The rating is based mainly on the credit quality of the receivables, the transaction structure, and the servicer’s experience.
Moody’s estimated the annualized expected default rate of the underlying assets at 2.5% (cumulative expected default rate: approximately 4.9%, Aaa credit enhancement: approximately 14.5%), after taking into consideration receivable attributes, historical data on the originator’s entire pool, performance data on existing securitization pools, and industry trends. The expected default rate is based on the default definition used in Moody’s analysis and may not be comparable to other rates.
To determine the rating, Moody’s also conducted a cash flow analysis by adding stress consistent with the assigned rating on parameters such as the expected default rate.
Moody’s assumes that, given the structure of the transaction as well as other factors, the risk of interruption to the cash flow from the assets in the event of the originator’s or the trustee’s bankruptcy is sufficiently minimized to achieve the rating assigned.
Moody’s considers the originator sufficiently capable of servicing the pool, after having taken into account the originator’s business experience and the servicing operations.
The principal methodology used in this rating was “Moody’s Global Approach to Rating Auto Loan- and Lease-Backed ABS” (Japanese) published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1236205. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Factors That Would Lead to an Upgrade or Downgrade of the Rating:
The primary factor that could lead to a downgrade of the rating is worse performance of the underlying assets than Moody’s expected.
Moody’s has also conducted the sensitivity analysis below which provides the number of notches by which the model-indicated output of the deal would have varied if different assumptions had been made as to certain key model parameters. The analysis assumes that the deal has not aged.
If the expected default rate was changed from 2.5% to 3.75% and 6.25% and other assumptions remained unchanged, the model-indicated output of ABL would change by 0 and 1 notch respectively.
The analysis results are model-indicated outputs, which are one of the many quantitative and qualitative factors considered by rating committees in determining actual ratings. This analysis does not intend to measure how the rating of the deal might migrate over time, but rather, how the initial model-indicated output of the deal might have differed if certain key model parameters had been varied.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer assets from the current weak Japanese economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
In rating this transaction, Moody’s used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.
Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
Moody’s SF Japan K.K. is a registered credit rating agency under the Financial Instrument and Exchange Act but not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore the credit ratings assigned by Moody’s SF Japan K.K. are Registered Credit Ratings to the FSA, but are not NRSRO Credit Ratings.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Atsushi Karikomi VP - Senior Credit Officer Structured Finance Group Moody's SF Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210 Yusuke Seki Associate Managing Director Structured Finance Group JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210 Releasing Office: Moody's SF Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210
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