MOODY'S RATES SUSQUEHANNA VEHICLE LEASE DEAL PRIME-1/Aaa
Approximately $239.5 Million of Asset Backed Securities Rated.
New York, July 25, 2003 -- Moody's Investors Service has assigned a Prime-1 rating to the
Class A-1 notes and an Aaa rating to the Class A-2 and Class
A-3 notes, A2 to the Class B notes, Baa2 to the Class
C notes, and Ba2 to the class D notes issued by Susquehanna Auto
Lease Trust 2003-1 (Susquehanna 2003-1).
The ratings reflect the credit quality of the underlying pool of closed-end
retail automobile leases, the expertise of Hann Financial Service
Corporation (Hann) as servicer, and the transaction's structural
protections. The transaction is also supported by 12.50%
subordinated notes; a reserve fund, with an initial deposit
of 3.00% of the initial pool balance, building up
to 6.50% of the initial pool balance; and the substantial
amount of excess spread available to absorb losses.
The complete rating's action is as follows:
Issuer: Susquehanna Auto Lease Trust 2003-1
$30,000,000 1.12% Class A1 Notes,
$30,000,000 1.53% Class A2 Notes,
$149,595,000 2.46% Class A3 Notes,
$14,370,000 3.80% Class B Notes,
$8,895,000 4.81% Class C Notes,
$6,587,000 Class D Notes, rated Ba2
The transaction is a senior-subordinate sequential pay titling
trust structure. The origination trust will issue a special unit
of beneficial interest (Transaction SUBI) constituting a beneficial interest
in the leases and the related vehicles included in the transaction.
The Transaction SUBI will be represented by a SUBI Certificate which represents
a beneficial interest in the origination trust relating solely to the
assets include in the Transaction SUBI. The SUBI Certificate will
be transferred to the issuer, Susquehanna Auto Lease Trust 2003-1,
at the time the issuer issues the notes.
Enhancement for the transaction consists of a reserve account, the
non-declining subordinated notes, which represent 12.50%
of the pool balance, and excess spread. The reserve account
was funded with an initial deposit of 3.00% of the pool
balance at closing and will build 6.50% of the initial pool
balance as cash accumulates from excess spread. The reserve will
not decline with amortization of the pool.
The subordinated notes will not receive any principal until the Class
A notes are paid in full. The transferor in this transaction will
retain the subordinated Class D notes.
POOL CHARACTERISTICS: PRIME QUALITY LEASES
The notes are backed by a pool of prime quality closed-end lease
contracts, which include vehicle concentration from diversified
foreign and domestic manufacturers. Hann, mostly originates
28-39 month and 40-51 month lease contracts: which
are represented in the collateral pool at 71.2%, and
20.3% respectively. The pool consists of a high concentration
of new vehicle leases (99.8%) and a high concentration of
lease vehicles with less than or equal to 12,000 miles (96.6%).
GEOGRAPHIC CONCENTRATION MAY LEAD TO VARIABILITY IN PERFORMANCE
Hann's geographic concentrations are located mainly within the two Eastern
states. New York and New Jersey, the two largest state concentrations,
account for 65.9% and 28.4%, respectively,
of the initial receivables pool. As a result, economic conditions
in these states may have a material impact on the performance of the pool.
RESIDUAL VALUE RISK
Risk of loss in auto lease transactions arises from two sources:
defaults on lease payments and loss arising from vehicle turn-ins
whose sale proceeds are less than the vehicles' residual value.
Residual value risk is more significant because it is often both concentrated
toward the end of the transaction and is more variable. This risk
is substantial due to the back-end payments of Susquehanna 2003-1
trust's residual losses. However, the non-declining
enhancement in this transaction diminishes the risk associated with the
uneven dispersion of the residual losses.
Hann's default and credit losses performance is of higher quality than
that of the industry. Total delinquencies (more than 30 days past
due) have remained relatively consistent from 0.13% at fiscal
year-end 1998, to 0.22% at fiscal year-end
2002. In addition, annual net charge-offs have remained
stable from 0.02% at fiscal year-end 1998 to 0.04%
at fiscal year-end 2002.
VICARIOUS LIABILITY RISK
Although the origination trust will own the leased vehicles allocated
to the Transaction SUBI and the issuer will have a beneficial interest
in the leased vehicles, the related lessees will operate the leased
vehicles. Certain state laws allow a party that incurs an injury
involving a vehicle operated in their respective states to sue the owner
of the vehicle merely because of that ownership. As owner of the
vehicles the origination trust may be subject to these vicarious tort
Since a high concentration of the vehicles Hann leases are located within
or near by these states, Hann Financial is required to maintain
on behalf of the origination trust contingent and excess liability insurance
coverage as well as an umbrella policy of $25 million. Hann
Financial will indemnify the origination trust against certain third party
claims, including vicarious liability claims. The insurance
policy and Hann's indemnification diminishes the transaction's risk associated
with the vicarious liability claims.
Hann Financial Service Corporation, a New Jersey corporation,
is a wholly owned subsidiary of Susquehanna Bancshares, Inc.,
a Pennsylvania-based financial services holding company formed
in 1982 and composed of nine commercial banks, and multiple support
affiliates. Susquehanna's senior unsecured, long-term
obligations are rated Baa1 by Moody's.
Structured Finance Group
Moody's Investors Service
Nicole S. Lawrence
Structured Finance Group
Moody's Investors Service