According to Moody's, the transaction benefits from credit strengths such as the granularity of the portfolio, the financial strength of the originator, and the positive performance of past transactions.
Moody's analysis focused, amongst other factors, on (i) an evaluation of the underlying portfolio of loans; (ii) historical performance information of the total book and past ABS transactions; (iii) the credit enhancement provided by subordination; (iv) the liquidity support available in the transaction by way of the reserve fund as well as the principal to pay interest mechanism; and (v) the overall legal and structural integrity of the transaction.
MAIN MODEL ASSUMPTIONS
Moody's determined the portfolio lifetime expected defaults of 10.0%, expected recoveries of 30.00% and Aaa portfolio credit enhancement ("PCE") of 27.0%. The expected defaults and recoveries capture our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody's to calibrate its lognormal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in our ABSCORE cash flow model to rate Auto and Consumer ABS.
Portfolio expected defaults of 10.0% are higher than the French Consumer ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historical performance of the book of the originator; (ii) macroeconomic trends; (iii) benchmark loan transactions; (iv) natural disaster risk; and (v) other qualitative considerations.
Portfolio expected recoveries of 30.00% are in line with the French Consumer ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the book of the originator; (ii) benchmark transactions; and (iii) other qualitative considerations.
PCE of 27.0% is higher than the French Consumer ABS average and is based on Moody's assessment of the pool taking into account (i) historical data variability; (ii) originator and servicer quality; (iii) asset concentration and (iv) macroeconomic expectations; and (v) natural disaster risk. The PCE level of 27.0% results in an implied coefficient of variation ("CoV") of approximately 35%.
PRINCIPAL METHODOLOGY:
The principal methodology used in this rating was "Moody's Approach to Rating Consumer Loan-Backed ABS" published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230138. 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:
Factors that may cause an upgrade of the rating include significantly better than expected performance of the pool together with an increase in credit enhancement of Notes.
Factors that may cause a downgrade of the rating include a decline in the overall performance of the portfolio and a meaningful deterioration of the credit profile of the originator and servicer.
REGULATORY DISCLOSURES
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.
The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.
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_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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.
Germain-Pierre Fargue Analyst Structured Finance Group Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Anthony Parry Senior Vice President/Manager Structured Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
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