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Rating Action:

Moody's assigns definitive rating to ABS notes issued by Swiss Auto Lease 2020-1 GmbH

23 Mar 2020

Madrid, March 23, 2020 -- Moody's Investors Service ("Moody's) has assigned the following definitive rating to notes issued by Swiss Auto Lease 2020-1 GmbH:

....CHF250 million Asset-Backed Notes due March 2030, Definitive Rating Assigned Aaa (sf)

Moody's has not assigned a rating to the Subordinated Certificates.

The transaction is a four-year revolving cash securitisation of auto lease receivables extended to obligors in Switzerland by Cembra Money Bank AG ("Cembra") (NR). This is the sixth public securitization by Cembra. The originator will also act as the servicer of the portfolio during the life of the transaction. All the previously Moody's rated Swiss Auto Lease transactions have been performing in line with or better than initial expectations.

The definitive portfolio of underlying assets consists of auto lease instalment receivables 68.3% and Residual Value ("RV") 31.7% cash flows. The underlying lease contracts are distributed through non-captive auto dealers in Switzerland. These lease contracts finance new cars 36.6% and used cars 63.4% to mainly private customers 91.3%. As of 28 February 2020, the definitive portfolio consists of 13,548 contracts worth approximately CHF 283.2 million with a weighted average seasoning of 0.8 years. During the revolving period the issuer will be able to purchase additional leases in line with certain eligibility and concentration criteria. The ratio of RV receivables may increase up to a maximum of 40.0% of the entire portfolio balance during the revolving period.

RATINGS RATIONALE

According to Moody's, the transaction benefits from credit strengths such as (i) the granularity of the portfolio in terms of lessee receivables and RV receivables, (ii) securitisation experience of the originator, and good performance of past transactions, (iii) subordination of 11.7% provided by the Subordinated Certificates and significant excess spread, and (iv) leases that extended primarily to private customers. However, Moody's notes that the transaction features some credit weaknesses such as (i) operational risk due to an unrated entity acting as originator and servicer, (ii) residual value risk which could increase during a revolving period of four years, (iii) commingling and set-off risk, and (iv) risk of excess spread compression due to negative interest rate on the account bank.

Various mitigants have been put in place in the transaction structure, such as credit enhancement to cover residual value and commingling risk and a ledger on the issuer account for transferred lessee deposits provided as collateral for lease contracts, to mitigate set-off risk. A servicing facilitator appointed at closing together with high liquidity coverage of note coupons reduce the exposure to operational risk. Additionally, commingling risk is mitigated by (i) lessee and dealer notification by the servicing facilitator in case of servicer insolvency, and (ii) a cash flow sweep mechanism within four business days of receipt of the collections.

Moody's analysis focused, amongst other factors, on (i) an evaluation of the underlying portfolio of lease receivables and RV receivables, which are guaranteed by the dealerships; (ii) historical performance information of the total book and the precedent transactions from Cembra; (iii) the credit enhancement provided by subordination, excess spread and cash reserve; (iv) the liquidity support available in the transaction by way of principal to pay interest and the cash reserve; and (v) the legal and structural aspects of the transaction.

Our analysis has considered the increased uncertainty relating to the effect of the coronavirus outbreak on the Swiss economy as well as the effects that the announced government measures, put in place to contain the virus, will have on the performance of consumer assets. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. It is a global health shock, which makes it extremely difficult to provide an economic assessment. The degree of uncertainty around our forecasts is unusually high, and far more severe scenarios are possible.

MAIN MODEL ASSUMPTIONS

Moody's determined the portfolio lifetime expected defaults of 2.0%, expected recoveries of 45.0% and Aaa portfolio credit enhancement ("PCE") of 7.25% related to lessee receivables. The expected defaults and recoveries capture our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody's to calibrate its lognormal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in our ABSROM cash flow model to rate Auto and Consumer ABS.

Portfolio expected defaults of 2.0% are in line with the EMEA Auto ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the book of the originator; (ii) similar pool characteristics to be expected from replenished portfolios; (iii) other similar transactions used as a benchmark; (iv) the strong performance of previous transactions; and (v) other qualitative considerations.

Portfolio expected recoveries of 45.0% are in line with the EMEA Auto ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the book of the originator; (ii) benchmark transactions; (iii) the concentration limits during the revolving period; and (iv) other qualitative considerations.

PCE of 7.25% is lower than the EMEA Auto ABS average and is based on Moody's assessment of the pool taking into account (i) a degree of uncertainty considering the expected performance of the portfolio given the length of the revolving period; (ii) the concentration limits during the revolving period and the increased share of used cars in the pool; (iii) the strong performance of past transactions; and (iv) the relative ranking to the originator's peers in the EMEA Auto ABS market. The PCE level of 7.25% results in an implied coefficient of variation ("CoV") of 57.53%.

In case a dealer does not meet its obligation to guarantee the contracted residual values, the transaction would be fully exposed to residual value (RV) risk. Moody's applies its RV risk assessment to evaluate this risk. The Aaa (sf) baseline RV haircut in this Swiss auto lease portfolio, after adjustment for its specific characteristics, is 40.0%. The RV haircut considers (i) the robustness of the RV settings, (ii) the concentration of the RV maturities, and (iii) the diversification of vehicle brands. The haircut is in line with the EMEA Auto ABS average. Our RV analysis results in an RV credit enhancement of 9.5% for the Aaa (sf) rated notes, taking into account (i) the RV haircut, (ii) the maximum RV exposure during the revolving period, and (iii) dealer guarantees.

METHODOLOGY

The principal methodology used in this rating was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in March 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

FACTORS THAT WOULD LEAD TO A DOWNGRADE OF THE RATING:

Factors that may cause a downgrade of the Notes include a decline in the overall performance of the pool, a significant deterioration of the credit profile of transaction parties like the servicer Cembra (NR).

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.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

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

Paula Couce Iglesias
Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Armin Krapf
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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