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Rating Action:

Moody's assigns definitive Aaa (sf) to Shinhan Card's cross-border credit card deal

12 Mar 2018

USD350 million of asset-backed securities rated

Hong Kong, March 12, 2018 -- Moody's Investors Service has assigned definitive Aaa (sf) rating to the floating rate secured notes issued by Shinhan Card 2018-1 International Ltd.

The complete rating action is as follows:

Issuer: Shinhan Card 2018-1 International Ltd

.... U.S.$350,000,000 Floating Rate Notes due 2022, Assigned Aaa (sf)

The rating addresses the expected loss posed to investors by the legal final maturity date of the notes. In Moody's opinion, the structure is designed to allow timely payment of interest and ultimate payment of principal at par on or before the notes' legal final maturity date. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

RATINGS RATIONALE

The definitive rating of the notes have been based on: (1) the credit quality of the portfolio; (2) the credit enhancement level of 18%; (3) the excess spread and liquidity reserve available to the transaction; (4) the minimum seller interest to account for certain risks, such as fraud and dilutions; (5) the credit quality and expertise of Shinhan Card in its role as servicer; and (6) the structural and legal integrity of the transaction, including the cross-currency swap that covers the currency transferability and convertibility risks in Korea, allowing the notes to pierce the Aa1 foreign currency bond ceiling of Korea to achieve a Aaa (sf) rating.

Shinhan Card's long term issuer rating is A2 with a stable outlook. There is a high degree of linkage between the ratings of the notes to the ratings of Shinhan Card, which is acting as sponsor, seller, and servicer.

A source of assumption uncertainty is the current macroeconomic environment: the low unemployment rate and low interest rate support the payment ability of Korean obligors. However, obligors could be vulnerable to economic shocks, given the increasing household debt levels in Korea. Moody's forecasts Korea GDP growth to be 2.8% and unemployment rate to be 3.6% in 2018.

DESCRIPTION OF TRANSACTION AND ISSUER

This is a cross-border securitization transaction sponsored by the Korea-based Shinhan Card Co., Ltd. (Shinhan Card, A2 stable). The assets backing the notes consist of present and future receivables under designated credit card accounts originated by Shinhan Card.

The portfolio comprises credit card receivables owed by cardholders for their purchases on credit, as well as for drawing cash advances.

Purchases on credit can be repaid, either: (1) in full by the next payment due date (lump sum purchases); (2) on an installment basis, for which equal principal payment will be made over a fixed term (installment purchases); or (3) in part by the next payment date with a monthly minimum for the cardholders granted a revolving credit limit (revolving payment).

Cash advances drawn by cardholders need to be repaid in full and with interest by a designated payment due date, or by the revolving payment method for the revolving payment accounts.

The transaction's revolving period ends in December 2020, and a six-month controlled amortization period will then follow. The USD-denominated notes pay monthly interest at a one-month LIBOR rate plus a spread. The principal will be repaid during the controlled amortization period.

With the occurrence and declaration of any of the early amortization triggers, the revolving or the controlled amortization periods will end immediately, and the principal collections will be passed through to the bondholder and used to accelerate principal repayments on the notes.

DESCRIPTION OF THE METHODOLOGY:

The principal methodology used in this rating was Moody's Approach to Rating Credit Card Receivables-Backed Securities published in July 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's credit card ABS rating methodology begins by developing a maximum loss that is consistent with a Aaa (sf) rating (Aaa level of credit enhancement given sponsor default (LGSD)), assuming that the sponsor has closed its cardholders' accounts. This scenario is associated with sponsors that are in or close to default. For Shinhan Card 2018-1 International Ltd, the Aaa LGSD is 28%.

The key parameters used to derive the Aaa LGSD are: charge off rates (current, long run and peak); payment rates (current and at the start of early amortization), receivable yield rates (current, at the start of early amortization and the compression level due to potential asset-liability mismatches); servicing fees (current and stressed) and the minimum seller's interest (as per the documents).

For Shinhan Card 2018-1 International Ltd, Moody's assumes a long run charge-off rate of 10%, principal payment rate at the start of early amortization of 11% and receivable yield rate at start of early amortization of 10%.

In a second step, the level of credit enhancement that is consistent with a Aaa (sf) rating is determined by lowering the Aaa LGSD by the applicable "dependency ratio". This ratio varies according to the sponsor's credit rating or counterparty risk assessment (CR Assessment), if available.

The higher the sponsor's credit rating or CR Assessment — as the case may be — the lower the dependency ratio. The ratio reflects the likelihood of the sponsor entering default, so higher-rated sponsors will require lower Aaa enhancement, all else being equal. The result is the minimum Aaa credit enhancement (CE), absent other counterparty or operational risks. For Shinhan Card 2018-1 International Ltd, the minimum Aaa CE is 12% as compared to the 18% subordination in the subject transaction.

PARAMETER SENSITIVITIES:

Parameter sensitivities provide a quantitative, model-indicated calculation of the number of notches that a Moody's-rated structured finance security may vary if certain input parameters used in the initial rating process differed.

In rating credit cards, the sponsor rating (or CR Assessment) and the long run charge off rate assumption are two key parameters in Moody's modelling of the notes. Parameter sensitivities for this transaction have been tested by lowering the sponsor's rating by two and three notches and by increasing the long run charge off assumption by 1% and 2%, respectively.

Assuming all else remains equal, the model outputs indicate that the rating of the notes would be Aa1 (sf) should there be a three notch downgrade of the sponsor's rating combined with a 2% increase in the long run charge off rate assumption.

This analysis assumes that the deal has not aged. It is also not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the notes could differ as certain key input parameters are varied at closing.

FACTORS THAT WOULD LEAD TO A DOWNGRADE OF THE RATING:

Factors that may cause a downgrade of the rating include a significant decline in the overall performance of the pool and a significant deterioration of the credit profile of the originator.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's took into account one or more third party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action and used the Due Diligence Assessment(s) in preparing the rating. This had a neutral impact on the rating.

The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each 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.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Joe Wong
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Jerome Cheng
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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