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09 Feb 2011
Approximately GBP 506 Million equivalent of UK Auto ABS Notes rated
London, 09 February 2011 -- Moody's Investors Service has assigned the following definitive rating
to notes issued by Cardiff Auto Receivables Securitisation Plc (the "Issuer"):
- Aaa (sf) to the GBP 250 million Class A1 Notes due September
- Aaa (sf) to the EUR 300 million Class A2 Notes due September
Moody's has not assigned ratings to the subordinated GBP 177.75
million Class U Notes.
The transaction is a static cash securitisation of hire purchase agreements
extended to obligors in the United Kingdom by Black Horse Limited (NR)("Black
Horse"), an indirect wholly owned subsidiary of Lloyds TSB Bank
Plc (Aa3/P-1/C-, stable outlook) ("LTSB").
This is the first public securitisation transaction in the United Kingdom
sponsored by Black Horse. The originator will also act as the servicer
of the portfolio during the life of the transaction.
The portfolio of underlying assets consists of hire purchase agreements
granted to individuals resident in the United Kingdom to finance the purchase
of new and used vehicles. The portfolio comprises amortising loans
whereby the underlying obligor is required to pay a monthly instalment
during the term of the underlying contract. As of 6 December 2010,
the portfolio consisted of 130,128 agreements, all of which
have been assigned a credit score of "A" under the originator's underwriting
procedures. The agreements were originated between 2005 and 2010,
with a weighted average seasoning of 15 months and a weighted average
remaining term of 37 months.
According to Moody's, the transaction benefits from credit strengths
such as a granular portfolio, a static and relatively simple transaction
structure and a 1.7% non-amortising reserve fund.
This reserve is fully funded at closing by a subordinated loan provided
by Black Horse. The reserve fund is available to cover any liquidity
shortfalls throughout the life of the transaction and can be used as credit
enhancement for the Class A1 notes and Class A2 notes (together,
the Class A notes) at the end. In addition, the transaction
benefits from LTSB acting as Servicer Guarantor. Pursuant to this,
LTSB will guarantee punctual performance of the duties and undertakings
of Black Horse in its role as Servicer and Cash Manager. Furthermore,
the structure envisions the appointment of a Back-Up Servicer if
the Servicer Guarantor (currently LTSB) is downgraded below Baa3.
On the other hand, as with all auto lease transactions in the UK,
the portfolio is exposed to the risk of voluntary termination ("VT") of
the hire purchase agreement by the obligor. As per the Consumer
Credit Act, a customer can choose to terminate the contract if they
have made payments equal to at least one-half of the total amount
which would have been payable under the contract and can return the vehicle
to the lessor. The structure does not envision the replacement
of Black Horse as the Cash Manager prior to insolvency which could lead
to a payment disruption on the Notes following an Insolvency Event of
Black Horse. In addition, Black Horse and LTSB undertake
various roles in the transaction such as swap counterparties, account
bank etc, all of which result in some linkage to Black Horse (and
LTSB as the parent). Additional risks to noteholders include potential
set-off arising from dealer misrepresentation and/or insurance
products which have been sold along with the financing of the leases.
This is however, mitigated to some extent by the obligation of Black
Horse to make up losses suffered by the Issuer due to set-off.
These aspects were factored in to Moody's overall analysis.
Moody's analysis focused, among other factors, on (i) an evaluation
of the underlying portfolio of loans; (ii) the macroeconomic environment;
(iii) historical performance information; (iv) the credit enhancement
provided by subordination, by the excess spread and the reserve
fund; (v) the liquidity support available in the transaction,
by way of principal to pay interest and the reserve fund; (vi) the
back-up servicing arrangement of the transaction; (vii) the
roles of the swap providers and (viii) the legal and structural integrity
of the transaction.
The V-score analysis for the transaction is medium. Moody's
has compared the transaction V-score with the EMEA German auto
lease sector benchmark. Moody's notes that the Quality of Historical
Data for the Issuer/Sponsor/ Originator and Issuer/Sponsor/Originator's
Historical Performance Variability are both Medium. Black Horse
provided historical information from 2002 to 2010 on defaults, voluntary
terminations and recoveries. In addition, Moody's has observed
significant variability in the performance of different origination vintages.
For more information, the V-Score has been assigned accordingly
to the report "V Scores and Parameter Sensitivities in the Non-U.S.
Vehicles ABS Sector", published in January 2009.
The principal methodologies used in this rating were Moody's Approach
to Rating European Auto ABS: More Rubber Set to Hit European Roads,
published in November 2002 and The Lognormal Method Applied to ABS Analysis,
published in July 2000.
Moody's Investors Service received and took into account a third party
due diligence report on the underlying assets or financial instruments
in this transaction and the due diligence report had a neutral impact
on the rating.
The rating addresses the expected loss posed to investors by the legal
final maturity of the notes. In Moody's opinion, the structure
allows for timely payment of interest and ultimate payment of principal
on the Class A notes. 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
Moody's assumed a gross default rate of 7.0% for the entire
pool, which takes into account both normal defaults by the obligors
and voluntary terminations. A coefficient of variation of 50%
has been used as the other main input for Moody's cash flow model,
ABSROM™. Moody's has stressed the results obtained from the
historical data analysis in part to account for worse performance of the
recent vintages given they will constitute the majority of the pool.
Commingling risk and set-off risk is assessed to be commensurate
with the ratings assigned on the Notes.
In rating auto ABS, the default rate and recovery rate are two key
inputs into Moody's cash-flow model. Parameter sensitivities
for this transaction have been tested in the following manner: Moody's
tested nine scenarios derived from the combination of mean default:
7% (base case), 8% (base case +1%),
9% (base case +2%) and recoveries: 40%
(base case), 35% (base case -5%), 30%
(base case -10%). The model output results for Class
A under these scenarios vary from Aaa (base case) to Aa3 (3 notches where
the default rate is 9% and the recovery is 30%).
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. The analysis assumes that the deal has
not aged. It is not intended to measure how the rating of the security
might migrate over time, but rather, how the initial model
output of the security might have differed if the two parameters within
a given sector that have the greatest rating impact were varied.
Provisional ratings were assigned on 24 January 2011. Subsequent
to assigning provisional ratings, the Class A notes were split into
A1 Sterling and A2 Euro denominated Notes stated above and are always
pro-rata and pari-passu. The final issuance amounts
were also based on definitive portfolio levels, but the credit enhancement
remains in line with that stated in Moody's provisional rating initial
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, parties not involved in the ratings,
public information and confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
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Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Senior Vice President
Structured Finance Group
Moody's Italia S.r.l
Moody's Investors Service Ltd.
Moody's assigns definitive ratings to Auto ABS issued by Cardiff Auto Receivables Securitisation 2011-1 Plc
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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