[ ] million Euro ABS Notes rated, relating to a portfolio of Finnish auto loans
Frankfurt am Main, April 06, 2021 -- Moody's Investors Service ("Moody's") has assigned the following provisional
rating to Notes to be issued by LT Autorahoitus DAC:
EUR [ ]M Class A Floating Rate Notes due April 2030, Assigned
(P)Aaa (sf)
Moody's has not assigned a rating to the subordinated EUR [ ]M Class
B Fixed Rate Notes due April 2030.
RATINGS RATIONALE
The Notes are backed by a static pool of Finnish auto loans originated
by LocalTapiola Finance Ltd. This represents the first issuance
for this originator.
The portfolio of assets amounts to approximately EUR 592 million as of
28 February 2021 pool cut-off date. The Reserve Fund will
be funded to 0.8% of the Class A Notes balance at closing
and the subordination for the Class A Notes will be 11.0%.
The provisional rating is primarily based on the credit quality of the
portfolio, the structural features of the transaction and its legal
integrity.
According to Moody's, the transaction benefits from various credit
strengths such as a granular portfolio and an amortising liquidity reserve
sized at 0.8% of Class A Notes balance. However,
Moody's notes that the transaction features some credit weaknesses such
as an unrated servicer and a back-up servicer facilitator with
limited experience in the Finnish market. Various mitigants have
been included in the transaction structure such as (i) a liquidity reserve
funded at closing that covers approx. 12 months of senior costs
and interest costs on Class A Notes, (ii) an interest rate swap
to hedge the interest mismatch between a fixed rate paying portfolio and
floating rate Class A Notes, and (iii) a back-up servicer
facilitator which is obliged to appoint a back-up servicer within
60 days if certain triggers are breached.
The portfolio of underlying assets was distributed through dealers to
private individuals to finance the purchase of new (21.7%)
and used (78.3%) cars. As of 28 February 2021 the
portfolio consists of 39,375 auto finance contracts with a weighted
average seasoning of twelve months. The balloon contracts (57.6%)
have equal instalments during the life of the contract and a larger balloon
payment at maturity. On average, the balloon instalment portion
accounts for 35.5% of the total principal of the balloon
auto finance contract.
Moody's determined the portfolio lifetime expected defaults of 2.5%,
expected recoveries of 40% and Aaa portfolio credit enhancement
("PCE") of 12.0%. 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 the cash flow model to rate Auto
ABS.
Portfolio expected defaults of 2.5% 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,
and (iii) other qualitative considerations, such as the high percentage
of balloon contracts and used car financing in the portfolio.
Portfolio expected recoveries of 40% 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 originator's
book, (ii) benchmark transactions, and (iii) other qualitative
considerations.
The PCE of 12.0% is higher than the EMEA Auto ABS average
and is based on Moody's assessment of the pool which is mainly driven
by (i) limited historical performance data due to the short origination
history of LocalTapiola Finance Ltd., (ii) benchmark transactions,
(iii) the static nature of the portfolio, and (iv) the exposure
to balloon payments despite considering the independence of the originator
from any particular car manufacturer. The PCE level of 12.0%
results in an implied coefficient of variation ("CoV") of 60.4%.
CURRENT ECONOMIC UNCERTAINTY:
The coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond the end
of the year. While persistent virus fears remain the main risk
for a recovery in demand, the economy will recover faster if vaccines
and further fiscal and monetary policy responses bring forward a normalization
of activity. As a result, there is a heightened degree of
uncertainty around our forecasts. Our analysis has considered the
effect on the performance of consumer assets from a gradual and unbalanced
recovery in Finnish economic activity.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
The principal methodology used in this rating was 'Moody's Global Approach
to Rating Auto Loan- and Lease-Backed ABS', published
in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1202515.
Alternatively, 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 RATING:
Factors that would lead to a downgrade of the rating include: (i)
economic conditions being worse than expected resulting in higher arrears
and losses in the portfolio, or (ii) increased counterparty risk
leading to potential operational risk of servicing or cash management
interruptions.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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, 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
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent(s)
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This rating is solicited. Please refer to Moody's Policy
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
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Please see www.moodys.com for any updates on changes to
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Armin Krapf
VP - Senior Credit Officer
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
Olga Gekht
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
