Approximately EUR 8.8 million of notes affected
Frankfurt am Main, December 10, 2010 -- Moody's Investors Service has today upgraded the following notes
issued by Edelweiss Auto Funding Limited:
- EUR8.8 million class B notes, upgraded to Aa1 (sf);
previously on 7 July, 2010 A2 (sf), placed on review for possible
upgrade
RATINGS RATIONALE
Today's rating action concludes Moody's review of Edelweiss Auto Funding
Limited and takes into consideration the better-than-expected
performance of the collateral and Austria's currently stable macroeconomic
environment. The rating of the notes takes into account:
(i) the credit quality of the underlying portfolio of auto-lease
receivables, from which Moody's determined its cumulative default
and recovery rate and volatility assumption; and (ii) the build-up
of credit enhancement within the transaction structure. The rating
also considers the transaction structure as assessed in Moody's cash flow
analysis. The expected cumulative default rate and volatility are
the two key parameters Moody's uses to calibrate its default-distribution
curve, used in the cash-flow model to rate European ABS transactions.
PORTFOLIOS EXPECTED CUMULATIVE DEFAULT RATE
Moody's has reassessed its cumulative default expectation of the pool
in light of the better than expected performance.
The collateral performance trend is in line with Moody's stable sector
outlook for German auto ABS (EMEA ABS, CMBS & RMBS Asset Performance
Outlooks, July 2010). As of October 2010, 90+
day delinquencies on the current balance were 0.04% for
Edelweiss Auto Funding. Over the past year, cumulative defaults
reported as a percentage of the original total securitised pool balances
marginally increased to 1.33% from 1.23%.
During the five-year replenishment period, the portfolio
characteristics changed. The initial portfolio comprised 3.6%
operating and 96.7% finance lease contracts granted to 33%
individual and 67% corporate borrowers. In October 2010,
the outstanding portfolio comprised almost 100% finance leases,
with 50.8% of the contracts granted to individuals and 49.2%
to corporate clients. At the same time, the average residual
value for finance lease contracts increased to 63% from 26%
due to outstanding lease-contract amortisation. Since closing,
the number of borrowers reduced to 6,593 from approximately 16,000.
This makes the outstanding portfolio more concentrated compared with other
Moody's rated auto ABS lease transactions in Germany or Austria,
where Moody's would expect the number of borrowers to be between 70,000
and 80,000. However, the exposure to the top lessee
decreased to 0.18% in October 2010 from 0.4%
at closing.
The analysis of cumulative default rates at closing found that corporate
borrowers and operating lease contracts defaulted more frequently than
individual borrowers or finance leases. This was also confirmed
by the analysis of the transaction's actual default performance.
However, compared with the original expectations, Moody's
observed that cumulative defaults were at much lower levels than in its
initial assumption.The higher debtor concentration --
together with the proportion of corporate borrowers -- led
Moody's to complement its historical data analysis with a simplified
SME approach, as it was able to rely on detailed lessee-outstanding
lease amount data.Overall, Moody's considers that the
current portfolio composition has improved and as a result, Moody's
expects future cumulative defaults as a percentage of the remaining balances
(as of October 2010) to be 2.7%. This translates
into a revised cumulative default assumption of 1.55% of
the total securitised assets, compared with 2.3% at
closing.
RECOVERY RATE AND VOLATILITY
Moody's maintains its original recovery rate of 50%,
which is slightly lower than the observed recovery rate in the transaction
since closing (55%, assuming no recovery lag). A rate
of 50% takes into account the price volatility in secondary car
markets that the transaction is exposed to, given the higher proportion
of residual values in the outstanding portfolio.
In Moody's opinion, the portfolio characteristics --
together with the seasoning of the outstanding assets --
imply less volatility than assumed initially. Consequently,
Moody's decreased the volatility to 55% from 75% at closing.
Moody's understands volatility as the ratio of the standard deviation
and the cumulative mean default rate assumptions of a portfolio.
The reserve fund in this transaction is currently at its target level.
In April 2010, the reserve fund target level was increased to €6.6
million from €4.4 million due to the annualised loss ratio
trigger being hit, exceeding the ratio of 0.6%.
This trigger is cured if, for two consecutive quarters, the
annualised loss ratio falls below 0.6%. In October
2010, this ratio was 0.21%.
Edelweiss Auto Funding Limited closed in 2003. The transaction
was originated by EBV Leasing GmbH & Co.KG, a subsidiary
of Erste Group Bank AG (Aa3/P-1). For details on the transactions'
structures, please refer to the New Issue Reports available on www.moodys.com.
The principal methodologies used in this rating were "The Lognormal
Approach applied to ABS Analysis," published in July 2000,
"Revising Default/Loss Assumptions Over the Life of an ABS/RMBS
Transaction," published in December 2008 and "Refining
the ABS SME Approach: Moody's Probability of Default assumptions
in the rating analysis of granular Small and Mid-sized Enterprise
portfolios in EMEA," published in March 2009.
Moody's used its excel based cash-flow model Moody's ABSROM™
as part of its quantitative analysis of the transaction. Moody's
ABSROM™ model enables users to model various features of a standard
European ABS transaction -- including the specifics of the
loss distribution of the assets, their portfolio amortisation profile,
yield, or recoveries and replenishments during the revolving period,
as well as the specific priority of payments, triggers, swaps
and reserve funds on the liability side of the ABS structure. Moody's
ABSROM™ User Guide, available on Moody's website, covers
the functionality of the model and provides a comprehensive index of the
user inputs and outputs.
Moody's Investors Service did not receive or take into account a
third-party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
The combination of the key updated assumptions together with the current
credit enhancement levels resulted in the upgrades of the rated junior
note for the transaction. Moody's analysed various sensitivities
of cumulative default rates to test the robustness of its revised ratings.
For instance, Moody's observed that the quantitative/model-indicated
rating outcome of the class B notes would remain consistent with the revised
rating if the mean default assumptions increased up to 60% of its
revised value (4.3% vs 2.7% base case assumption).
Moody's also run sensitivities on its base case recovery rate with the
result that the revised rating could sustain a fall in recoveries by 50%
(25% vs 50% base case assumption).
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and
confidential and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
In addition Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Sebastian Hoepfner
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
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SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
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Germany
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Moody's Investors Service upgrades junior notes of Edelweiss Auto Funding Limited, Austrian Auto ABS
