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Rating Action:

Moody's assigns definitive ratings to Genius Auto Finance auto loan ABS in China: Generation 2019-1 Retail Auto Mortgage Loan Securitisation

12 Apr 2019

RMB2,722 million of securities rated

Hong Kong, April 12, 2019 -- Moody's Investors Service has assigned definitive Aa3 (sf) ratings to the Class A1 and A2 Senior Notes and A3 (sf) rating on the Class B Senior Notes issued by Generation 2019-1 Retail Auto Mortgage Loan Securitisation, a domestic transaction backed by a static pool of auto loans originated by Genius Auto Finance Co., Ltd (Genius AFC) in China.

The complete rating action is as follows:

Issuer: Generation 2019-1 Retail Auto Mortgage Loan Securitisation

....RMB1,550m Class A1 Senior Notes, Assigned Aa3 (sf)

....RMB970m Class A2 Senior Notes, Assigned Aa3 (sf)

....RMB202m Class B Senior Notes, Assigned A3 (sf)

The RMB278m Subordinated Notes are not rated by Moody's.

RATINGS RATIONALE

When assigning the ratings, Moody's analysis focused, among other factors, on:

(1) the characteristics of the securitized pool;

(2) the short operating history of the originator and lack of historical performance data during the economically distressed period;

(3) the macroeconomic environment;

(4) the parental support available to the servicer;

(5) the potential disruption to the issuer's cash flow in case of a servicer termination event, the adequacy of the liquidity reserve, and effectiveness of other structural mechanisms to support timely payments on the rated notes;

(6) the protection provided by credit enhancement against defaults and arrears in the securitized pool; and

(7) the legal and structural integrity of the transaction.

Moody's considered, among other things, the transaction's key strengths:

(1) Favorable pool characteristics: The portfolio is highly granular, consisting of 56,322 obligors spread across 30 regions in China. All loans in the portfolio have fully amortizing repayment terms, a minimum down payment of 20% and a weighted average down payment rate of about 38.53% at loan origination. The portfolio has a short weighted average life of about one year.

(2) Strong credit enhancement: The rated notes are mainly protected by the class of notes that rank junior to each of them and by a fully funded liquidity reserve at closing, which will have a required target balance equal to three times the sum of the monthly rated notes' interest and payments ranking ahead of them after closing. Excess spread received (if any) and the liquidity reserve balance in excess of the target amount will also be fully used to repay the rated notes.

(3) Static structure with fast amortization: This is a static deal with no revolving period. As a result, the transaction is only exposed to the default risk of the loans in the cut-off pool. The issuer will apply the loan principal repayments in accordance with the priority of payment, whereby the Class A1 Senior Notes are paid up to the scheduled principal payment on each note's payment date, the remaining collections are used to repay the Class A2 Senior Notes until they are repaid in full, and subsequently, and any further remaining collections are used to repay the Class B Senior Notes until they are repaid in full.

(4) Strong interest alignment: The originator has a strong alignment of interest with the noteholders because the originator retains the subordinated notes.

Moody's has also considered the following weaknesses and mitigants:

(1) Short operating history: The originator was established in 2015. Its major shareholder, Geely Automobile Holdings Limited (Geely, Ba1 positive), owns 80% of its shares and is a subsidiary of Zhejiang Geely Holding Group Company Limited, which in turn is a top-ten automobile manufacturer in China. The remaining 20% of shares are held by BNP Paribas Personal Finance (BNPP PF, Aa3 stable). Due to the short operating history, Moody's has benchmarked the historical data provided by the originator to data from similar periods from comparable originators in China, among other information, to determine the expected portfolio default rate of 1.5% and portfolio credit enhancement of 8.0%. These assumptions are stressed from the 0.21% extrapolated mean default rate of the historical data provided by the originator, to reflect the short performance history, as well as the fact that the data period from October 2015 to December 2018 coincides with a period of strong economic growth in China, without any period of financial stress, along with the prospects of a slowing economic growth and rising credit concerns in China.

(2) Commingling risk: The servicer collects payments and recoveries from the underlying loans during the monthly collection period and will transfer the collections to the issuer on a monthly basis. Before transferring to the issuer, collections are kept in the general account of the servicer and thus are subject to commingling risk. Moody's has considered (1) the credit quality of the servicer and its parent companies; and (2) the payment mechanism in this transaction, and modeled for a commingling exposure equal to 1.5 months of collections and a 45% recovery rate on such exposure.

(3) Limited liquidity buffer: An amortizing liquidity reserve, equal to 1.0% of the initial portfolio amount, will be prefunded in the issuer's liquidity reserve account at closing, and will be maintained with an account balance equal to three times the next monthly senior fess and rated notes' interest payment. This amount of liquidity may not be sufficient in the unlikely scenario of both the servicer and issuer failing to service the portfolio for a prolonged time. Moody's considered (1) the parental support available to the servicer; (2) the short tenor of this transaction; and (3) perfection of the trust's right over the assigned loans through notification to the underlying borrowers soon after a servicer termination event as key mitigants to this weakness.

(4) Untested back-up servicing arrangement: No back-up servicing arrangement was set up at closing. Servicing of the transaction may be subject to disruption if the originator/servicer fails to perform when needed. Any disruption may result in a significant impact. There is no precedent in China of actual servicing transfers to date, although potential replacement servicers exist. Moody's considers the high likelihood of parental support for the servicer and the short weighted average life of the rated notes as key mitigants to this weakness.

MAIN MODEL ASSUMPTIONS

Moody's assumed a mean default rate of 1.5% and a portfolio credit enhancement of 8.0% for the securitized pool. A recovery rate of 5% is used as the other main input for Moody's cash flow model ABSROM. These assumptions are made according to Moody's analysis of the characteristics of such pools, their historical performance, and the current view of China's social and macroeconomic conditions and risks as reflected in its local currency bond ceiling of Aa3.

RATINGS 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:

Factors that may cause an upgrade of the ratings of the Class A1 and A2 Senior Notes include a decrease in non-diversifiable country risk in China. Factors that may cause an upgrade of the rating of the Class B Senior Notes include a significant better-than-expected performance of the pool.

Factors that may cause a downgrade of the ratings include an increase in non-diversifiable country risk in China; a decline in the overall performance of the pool; a significant deterioration in the credit profile of the originator or its parent companies and the absence of the implementation of any mitigating actions for the deal.

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than what Moody's had previously anticipated.

THE COMPANY

Genius AFC is 80% owned by Geely (Ba1 positive) and 20% owned by BNPP PF (Aa3 stable). It was established in 2015 and is licensed under the supervision of the China Banking and Insurance Regulatory Commission (CBIRC). Genius AFC provides auto loans to car purchasers of a number of brands, including Geely, Volvo and Lynk&Co. The loans are originated through its dealership network across China.

The issuer is a newly established special purpose trust incorporated in the China.

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 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).

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.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

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

For PRC only: Neither MCO nor any of its majority-owned affiliates is a qualified credit rating agency within the PRC. Any rating assigned by MCO or any of its majority-owned affiliates: (1) does not constitute a rating as required under any relevant PRC laws or regulations; (2) cannot be included in any registration statement, offering circular, prospectus or any other documents submitted to the PRC regulatory authorities; and (3) cannot be used within the PRC for any regulatory purpose or for any other purpose which is not permitted under relevant PRC laws or regulations. For the purposes of this paragraph, "PRC" refers to the mainland of the People's Republic of China, excluding Hong Kong, Macau and Taiwan.

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.

Elaine Ng
VP-Sr Credit Officer
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.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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