Approximately $605 million securities rated
Toronto, February 04, 2020 -- Moody's Investors Service, ("Moody's") has
assigned definitive ratings of P-1 (sf) to the Class A-1
notes, Aaa (sf) to the Class A-2a, A-2b,
A-3 and A-4 notes, Aa2 (sf) to the Class B notes,
and A3 (sf) to the Class C notes issued by Canadian Pacer Auto Receivables
Trust 2020-1 (CPART 2020-1). This is the fifth term
auto loan-backed transaction sponsored by Bank of Montreal (BMO).
The notes are collateralized by a pool of retail automobile loan contracts
originated by BMO.
The complete rating actions are as follows:
Issuer: Canadian Pacer Auto Receivables Trust 2020-1
$86,000,000, 1.68620%, Class
A-1 Notes, Definitive Rating Assigned P-1 (sf)
$150,000,000, 1.77%%,
Class A-2a Notes, Definitive Rating Assigned Aaa (sf)
$110,000,000, Benchmark + 0.20%,
Class A-2b Notes, Definitive Rating Assigned Aaa (sf)
$175,000,000, 1.83%, Class
A-3 Notes, Definitive Rating Assigned Aaa (sf)
$50,924,000, 1.89%, Class
A-4 Notes, Definitive Rating Assigned Aaa (sf)
$18,156,000, 2.00%, Class
B Notes, Definitive Rating Assigned Aa2 (sf)
$15,130,000, 2.49%, Class
C Notes, Definitive Rating Assigned A3 (sf)
RATINGS RATIONALE
The ratings are primarily based on an analysis of the credit quality of
the collateral pool and its expected performance, the servicing
ability of BMO, and the level of credit enhancement available under
the proposed capital structure.
The definitive rating for the Class C notes of A3 (sf) is one notch higher
than the provisional ratings of (P)Baa1 (sf). This difference is
a result of the transaction closing with a lower weighted average coupon
(WAC) on the notes than was assumed in our modeling for the provisional
ratings. The WAC assumptions used by Moody's were provided
by the issuer.
Moody's expected median cumulative net credit loss for CPART 2020-1
is 0.80% and total credit enhancement (including excess
spread credit) required to achieve the Aaa (sf) rating is 6.5%.
The cumulative net loss expectation and loss at a Aaa stress are lower
than the previously rated 2019-1 transaction in view of the comparable
pools and the stable performance of existing CPART transactions.
Moody's based its cumulative net loss expectation and loss at a
Aaa stress on an analysis of the credit quality of the underlying collateral;
the historical performance of similar collateral, including securitization
performance and BMO's owned and managed book performance; the
ability of BMO to perform the servicing functions; and current expectations
for the macroeconomic environment during the life of the transaction.
At closing, the Class A notes, Class B notes and Class C notes
will benefit from 6.0%, 3.0% and 0.5%
of hard credit enhancement, respectively. Hard credit enhancement
for the notes consists of subordination and non-declining reserve
account except for Class C which do not benefit from subordination.
The notes will also benefit from excess spread.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings 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 an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the Class B and/or Class C notes if levels of credit
protection are higher than necessary to protect investors against current
expectations of portfolio losses. Losses could decline from Moody's
original expectations as a result of a lower number of obligor defaults
or appreciation in the value of the vehicles securing an obligor's promise
of payment. Transaction performance also depends greatly on the
Canadian job market and the market for used vehicles. Other reasons
for better-than-expected performance include changes to
servicing practices that enhance collections or refinancing opportunities
that result in prepayments.
Down
Moody's could downgrade the Class A, Class B and/or Class C notes
if levels of credit protection are insufficient to protect investors against
current expectations of portfolio losses. Losses could rise above
Moody's original expectations as a result of a higher number of obligor
defaults or deterioration in the value of the vehicles securing an obligor's
promise of payment. Transaction performance also depends greatly
on the Canadian job market and the market for used vehicles. Other
reasons for worse-than-expected performance include poor
servicing, error on the part of transaction parties, inadequate
transaction governance and fraud.
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
assessments regarding the underlying assets or financial instruments (the
"Due Diligence Assessment(s)") in this credit rating action
and used the Due Diligence Assessments in preparing the ratings.
This had a neutral impact on the ratings.
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).
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1212567
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.
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, 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
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.
Aliya Ehmar
Analyst
Structured Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Richard Hunt
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
