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Rating Action:

Moody's Investors Service upgrades junior notes of Edelweiss Auto Funding Limited, Austrian Auto ABS

10 Dec 2010

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
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service upgrades junior notes of Edelweiss Auto Funding Limited, Austrian Auto ABS
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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