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Rating Action:

Moody's assigns definitive ratings to ABS Notes issued by Asset-Backed European Securitisation Transaction Sixteen UG (haftungsbeschränkt)

03 Dec 2018

Euro 605 million ABS Notes rated, relating to a portfolio of German auto loans

Frankfurt am Main, December 03, 2018 -- Moody's Investors Service ("Moody's") has assigned the following ratings to Notes issued by Asset-Backed European Securitisation Transaction Sixteen UG (haftungsbeschränkt):

....EUR540.0M Class A Asset-Backed Floating Rate Notes due December 2028, Definitive Rating Assigned Aaa (sf)

....EUR18.0M Class B Asset-Backed Floating Rate Notes due December 2028, Definitive Rating Assigned Aa1 (sf)

....EUR20.0M Class C Asset-Backed Floating Rate Notes due December 2028, Definitive Rating Assigned A1 (sf)

....EUR16.0M Class D Asset-Backed Floating Rate Notes due December 2028, Definitive Rating Assigned Baa1 (sf)

....EUR11.0M Class E Asset-Backed Floating Rate Notes due December 2028, Definitive Rating Assigned Ba1 (sf)

Moody's has not assigned a rating to the EUR 26.6M Class M Asset-Backed Fixed Rate Notes, which will be issued at the closing of the transaction. Only 17,460,282 of the Class M is backed by collateral.

RATINGS RATIONALE

Asset-Backed European Securitisation Transaction Sixteen UG (haftungsbeschränkt) is a 12-month revolving cash securitisation of auto loan receivables extended by FCA Bank Deutschland GmbH, which is a 100% subsidiary of FCA Bank S.p.A. (Baa2(cr)/P-2(cr)/Baa1 long-term deposits), to obligors located in Germany. The portfolio consists of loans extended to private non-value added tax and small businesses/commercial Value Added Tax ("VAT") obligors in Germany. The servicer is FCA Bank Deutschland GmbH. This is the third public auto loan securitisation transaction in Germany rated by Moody's originated by FCA Bank Deutschland GmbH since 2002. The originator will also act as the servicer and swap counterparty of the portfolio during the life of the transaction.

The securitised assets are made up of monthly paying standardised auto loans that FCA Bank Deutschland GmbH dealerships have granted to private and commercial individuals resident in Germany.

As of 7th of November 2018, the portfolio balance of the final portfolio amounts to €622,460,282 for a total of 45,205 loans. The portfolio is collateralised by 65.2% new cars and 34.8% used cars, whereby the majority of vehicles relate to the Fiat brand 53.5%. Portfolio cash flows result from 72.3% regular installment 27.7% balloon payments.

According to Moody's, the transaction benefits from credit strengths such as a granular portfolio, a simple transaction structure, and the positive performance of past transactions. Furthermore, the Class A, B, C, D and E Notes benefit from an amortising cash reserve of 1.5% of the rated Notes at closing with a floor of EUR1 million. This reserve is fully funded at closing and will provide liquidity during the life of the transaction to pay senior expenses and coupons on Class A, B, C, D and E Notes in the event of a cash flow disruption. In addition, the contractual documents include the obligation of the calculation agent to estimate amounts due in the event that a servicer report is not available. This reduces the risk of any technical non-payment of interest on the Notes.

However, Moody's Notes that the transaction features some credit weaknesses such as (i) the 12-month revolving period which could create volatility of pool performance and (ii) the relatively high proportion of balloon loans. We consider commingling risk to be sufficiently mitigated mainly by the transfer of collection in the collection account to the issuer account bank latest 1 business day after they were received and the automatic termination of collection authority upon servicer insolvency. There is no set-off risk from customer deposits or employees in the transaction. However, set-off risk from the various types of insurance may arise.

Three broad contract types will be securitised: retail loans (42.5%), balloon loans (45.3%) and formula loans (12.2%). Retail loans are repaid on the basis of fixed monthly instalments of equal amounts throughout the term of the loan. Balloon loans having monthly instalments of equal amounts throughout the term of the loan with a substantial portion of the outstanding principal under the loan being repaid in a single bullet at maturity and formula loans which are structured as the 'Balloon Loan'. The borrower under a formula loan enters into a repurchase agreement with a FCA Group dealer under which the dealer agrees to repurchase the vehicle at maturity. The dealer agrees to pay the balloon amount to the Originator. However, the liability of the borrower is independent of the dealer's situation.

Moody's analysis focused, among other factors, on (1) an evaluation of the underlying portfolio of receivables; (2) the historical performance on defaults and loss data from April 2000 to March 2018; (3) the credit enhancement provided by subordination and cash reserve; (4) the liquidity support available in the transaction by way of principal to pay interest, the cash reserve and excess spread; and (5) the legal and structural aspects of the transaction.

The automotive sector is undergoing a technology-driven transformation which will have credit implications for auto finance portfolios. Technological obsolescence, shifts in demand patterns and changes in government policy will result in some segments experiencing greater volatility in the level of recoveries compared to that seen historically. For example Diesel engines have declined in popularity and older engine types face restrictions in certain metropolitan areas.

The seller has provided a detailed breakdown of the engine types in the portfolio including the split between Euro 5 (and older) and 6 emission standards.

MAIN MODEL ASSUMPTIONS

Moody's determined the portfolio lifetime expected loss of 2.00% and Aaa portfolio credit enhancement ("PCE") of 13.00% related to borrower receivables. The expected loss captures 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 the ABSROM cash flow model to rate Auto ABS.

Portfolio expected loss of 2.00% is slightly higher than the EMEA Auto Loan ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the loan book of the originator, (ii) benchmark transactions, and (iii) other qualitative considerations, such as the balloon loan component of the portfolio.

PCE of 13.00% is higher than the EMEA Auto Loan ABS average and is based on Moody's assessment of the data variability, as well as by benchmarking this portfolio with past and similar transactions. Factors that affect the potential variability of a pool's credit losses are: (i) historical data variability, (ii) quantity, quality and relevance of historical performance data, (iii) originator quality, (iv) servicer quality, and (v) certain pool characteristics, such as asset concentration, lumpiness of cash flows (high balloon payments). The PCE level of 13.00% results in an implied coefficient of variation ("CoV") of 53.27%.

METHODOLOGY

The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Credit Rating for Asset-Backed European Securitisation Transaction Sixteen UG (haftungsbeschränkt) was assigned in accordance with Moody's existing Methodology entitled 'Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS,' dated 6th October 2016. Please note that on 14th November 2018, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Methodology for Auto ABS. If the revised Methodology is implemented as proposed, the Credit Ratings on Asset-Backed European Securitisation Transaction Sixteen UG (haftungsbeschränkt) are not expected to be affected. Please refer to Moody's Request for Comment, titled 'Proposed Update to Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS,' for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

Factors that may lead to an upgrade of the Class B, Class C, Class D and E Notes rating include significantly better than expected performance of the pool.

Factors that may cause a downgrade of the Class A, Class B, Class C, Class D and Class E Notes include a decline in the overall performance of the pool, or 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.

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.

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. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

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.

Steven Becker
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Anthony Parry
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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

No Related Data.
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