Approximately C$314 million of asset backed securities affected.
New York, September 15, 2010 -- Moody's Investors Service has assigned ratings to the Series 2010-2
Asset Backed Notes issued by Fleet Leasing Receivables Trust (the Trust).
The complete rating action is as follows:
Issuer: Fleet Leasing Receivables Trust (the "Trust")
C$300,000,000 (maximum) Series 2010-2 Class
A Asset Backed Notes, rated Aaa (sf)
C$14,010,000 (maximum) Series 2010-2 Class B
Asset Backed Notes, rated A2 (sf)
The variable funding notes are backed by a diversified pool of open-end
fleet leases and related leased vehicles. The lessees under the
leases are corporations and government agencies with a substantial number
of them rated. The historical performance of the collateral has
been extremely good. The net losses on PHH Canada's entire
lease portfolio since 2004 have been minimal.
The leases were originated by PHH Vehicle Management Services Inc.
(PHH Canada), a Canadian corporation and a wholly-owned indirect
subsidiary of PHH Corporation (Ba2, outlook stable). PHH
Canada, as servicer, will service the leases and administer
the disposition of vehicles.. PHH Canada provides vehicle
leasing and fleet management services to corporations and government agencies
diversified across industries in Canada. PHH Canada has substantial
experience as a securitization sponsor, having program assets funded
by the ABCP market for over 15 years . PHH Canada also completed
its first term ABS transaction through the Trust in January 2010.
The ratings are based on an assessment of the quality of the collateral,
the credit enhancement in the deal and the structural features including
a cash spread account, a yield supplement account and a backup servicer
Key credit metrics considered by Moody's include the weighted average
rating of the lessees, the diversity score (a measure of the diversity
of the pool of lessees) and the break-even recovery rate on liquidated
collateral in the event of a lessee default. Approximately 48%
of the pool by dollars consists of lessees rated by Moody's, and
this 48% has an overall weighted average rating of Baa2.
Assuming that the weighted average rating of the remaining 52%
of the pool is B2, then the weighted average rating of the entire
pool would be Ba2. The diversity score for the pool is 57,
meaning the pool of lessees will have a similar default profile as a pool
of 57 independent and equal-sized lessees with the same rating
as the weighted average rating of the pool. We stress break-even
recovery rates for the various rating levels. The estimated break-even
recovery rate for Class A is approximately 54% to 63% and
for Class B is approximately 62% to 68%.
Moody's V Score: The V Score for this transaction is Medium,
the same as that for the fleet leasing sector in North America.
The V Score indicates "Medium" uncertainty about critical assumptions
such as data quality and disclosure, transaction and analytical
complexity as well as market value risk. Historical losses on the
collateral are extremely low due to the average good credit quality of
the corporate lessees and volatility is also mild but historical data
do not reflect the impact of the relatively high obligor and industry
concentration in the pool under a stressed, mass obligor default
scenario. As a result, an overall score of Medium is assigned
to this transaction in spite of the fact that there has been no downgrade
in the past ten years in the sector and the governance of the transaction
is better than average among ABS transactions.
Moody's V Scores provide a relative assessment of the quality of available
credit information and the potential variability around the various inputs
to a rating determination. The V Score ranks transactions by the
potential for significant rating changes owing to uncertainty around the
assumptions due to data quality, historical performance, the
level of disclosure, transaction complexity, the modeling
and the transaction governance that underlie the ratings. V Scores
apply to the entire transaction (rather than individual tranches).
Moody's Parameter Sensitivities: For this exercise, we analyze
stress scenarios assessing the potential model-indicated ratings
impact if (a) the assumed weighted average rating of the lessees were
to immediately decline from Ba1 to Ba2, Ba3 and B1 and (b) the assumed
recovery rates were to decrease from 75% to 70%, 65%
and 60%. The following descriptions provide a summary of
Using such assumptions, the Aaa (sf) initial rating for the Class
A notes might change as follows based purely on the model results:
(a) If the assumed weighted average rating of lessees is Ba1, there
will be no change in rating as recovery rate decreases to 60%;
(b) If the weighted average rating of lessees is Ba2, there will
be no change in rating as recovery rate decreases to 60%;
(c) If the weighted average rating of lessees is Ba3, the maximum
change will be one notch to Aa1 as recovery rate decreases to 60%;
and (d) If the weighted average rating of lessees is B1, the maximum
change will be four notches to Baa2 as recovery decreases to 60%.
The A2 (sf) initial rating for the Class B notes might change as follows
based purely on the model results: (a) If the assumed weighted average
rating of lessees is Ba1, there will be no change in rating as recovery
rate decreases to 70%; (b) If the weighted average rating
of lessees is Ba2, there will no change in rating as recovery rate
decreases to 70%; (c) If the weighted average rating of lessees
is Ba3, there will be no change in rating as recovery rate decreases
to 70%; and (d) If the weighted average rating of lessees
is B1, the maximum change will be five notches to Ba1as recovery
decreases to 70%.
Parameter Sensitivities are not intended to measure how the rating of
the security might migrate over time, rather they are designed to
provide a quantitative calculation of how the initial rating might change
if key input parameters used in the initial rating process differed.
The analysis assumes that the deal has not aged. Parameter Sensitivities
only reflect the ratings impact of each scenario from a quantitative/model-indicated
standpoint. Qualitative factors are also taken into consideration
in the ratings process, so the actual ratings that would be assigned
in each case could vary from the information presented in the Parameter
The principal methodology used in rating the transaction is summarized
below. Other methodologies and factors that may have been considered
in the process of rating this issue can also be found in the Rating Methodologies
sub-directory on Moody's website.
Two approaches were utilized to quantitatively assess the risks to the
transaction. The primary method is the standard Binomial Expansion
Technique (BET). Additional, the CDOROM model was used in
a separate analysis in conjunction with the BET (Hybrid CDOROM Approach).
The Hybrid CDOROM approach provides greater sensitivity to actual obligor
concentration and ratings, thus serving as a check of the idealized
As all the underlying collateral consists of a pool of open-end
leases (i.e. leases where the lessees are responsible for
any residual value losses), the potential credit loss of this transaction
is primarily driven by the default likelihood of the lessees, the
recovery rate when a lessee defaults, and the diversity of the pool
of lessees. An approach similar to that used in CLO transactions
is used. The CLO approach hinges on the idea of using a 'hypothetical
pool' to map the credit and loss characteristics of an actual pool and
then employing a mathematical technique called binomial expansion to determine
the expected loss of the bond to be rated. Using the binomial expansion
technique, the probability of default of each possible scenario
is calculated based on a mathematical formula, and the cashflow
profile for each scenario is determined based on an assumed recovery rate.
Then each cashflow scenario is fed into a liability model to determine
the actual loss on the bond under each scenario, and the probability
weighted loss or expected loss of the bond is determined. The expected
loss of the bond is then compared with Moody's Idealized Cumulative Expected
Loss Rates Table to determine a rating for the bond.
The hypothetical pool is characterized by a diversity score. The
diversity score measures the diversity of the actual pool by mathematically
converting the obligor concentrations of the actual pool into the number
of equally-sized uncorrelated obligors which would represent the
same credit risk as the actual pool. This process is summarized
as follows. Each lessee is assigned its applicable industry category.
Lessees in the same industry are assumed to be correlated with each other,
while lessees in different industries are assumed to be independent.
The number of lessees in the same industry is reduced to reflect the correlation
among them. For example, when calculating the diversity score,
six equal-sized lessees in the same industry are counted as three
independent obligors, while six equal-sized lessees in six
different industries are counted as six independent obligors. The
size of the lessees is also accounted for by reducing the number of lessees
with below average lessee size. In general, the higher the
diversity score, the lower the collateral loss volatility will be
and consequently, the lower the expected loss of a security,
other factors being the same.
Each possible default scenario is determined by both the diversity score
and the average probability of default of the pool. The weighted
average probability of default of the pool is determined by the probability
of default of each lessee or obligor, which is estimated using the
actual lessees' credit ratings, if rated. For non-rated
lessees, the average rating is assumed to be lower than that of
the rated lessees. For example, if the average rating for
the rated lessees is Baa2, we could assume a rating of Baa3 or lower
as the average rating for the non-rated lessees. The estimated
weighted average rating for the entire hypothetical pool is then used
to estimate the probability of each default scenario.
The actual net loss on the bonds under each default scenario is determined
taking into consideration of recoveries in case of default. When
a lessee defaults, recoveries are obtained as the related leased
vehicles are reprocessed and sold to repay the defaulted lease obligation.
We conduct detailed recovery analyses based on the types of vehicles leased
and various default scenarios for lessees. Based on those recovery
analyses, we determine the ratings after considering the breakeven
recovery rates for the different classes of notes at their associated
credit enhancement levels.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments in this transaction.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating. However, the credit rating action was based
on a limited history of historical data. The historical managed
pool performance data dates back to 2004. In addition, 52%
of the initial pool does not carry a rating by Moody's, which
makes it more difficult to predict the likelihood of default by those
lessees and the ultimate recovery rates.
Additional research including a pre-sale report for the previous
transaction is available at www.moodys.com. The special
report, "Updated Report on V Scores and Parameter Sensitivities
for Structured Finance Securities" is also available at moodys.com.
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 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.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Aaa (sf) and A2 (sf) ratings to notes backed by PHH Canada fleet leases
250 Greenwich Street
New York, NY 10007