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Rating Action:

Moody's assigns provisional ratings to 4 Classes of ABS to be issued by Trafigura Securitisation Finance PLC

06 Jul 2021

USD [300] million of securities rated

Madrid, July 06, 2021 -- Moody's Investors Service has today assigned the following provisional ratings to be issued by Trafigura Securitisation Finance PLC:

....USD [69.75]M Series - 2021-1 Class A1 Floating Rate Notes due January 2025, Assigned (P)Aaa (sf)

....USD [209.25]M Series - 2021-1 Class A2 Fixed Rate Notes due January 2025, Assigned (P)Aaa (sf)

....USD [5.25] M Series - 2021-1 Class B1 Floating Rate Notes due January 2025, Assigned (P)Baa2 (sf)

....USD [15.75]M Series - 2021-1 Class B2 Fixed Rate Notes due January 2025, Assigned (P)Baa2 (sf)

Trafigura Securitisation Finance PLC is a securitisation of trade receivables originated by subsidiaries of Trafigura Group Pte. Ltd., namely Trafigura Pte. Ltd. and Trafigura Trading LLC and, as of July 2021, Trafigura Asia Trading Pte. Ltd. which has been revolving since the first issuance rated in 2007. The structure will include a revolving period till March 2027. The securitised trade receivables are generated from the sale of crude oil, oil products, non-ferrous metals, non-ferrous metal concentrates, iron ore, coal and refined metals.

RATINGS RATIONALE

The ratings of the notes are primarily based on the analysis of the credit quality of the underlying portfolio, the structural integrity of the transaction, the roles of external counterparties and the protection provided by credit enhancement.

The collateral within Trafigura Securitisation Finance PLC has performed strongly since the first notes were issued in 2007, with average default, delinquency (defined as 4 weeks past due) and dilution rates both well below 0.2%. The receivables within the transaction often benefit from letters of credit provided by third -party banks and therefore the portfolio credit risk is not only on the receivable's original debtor but also on a small number of typically highly rated banks.

In Moody's view, the strong credit positive features of this deal include, among others: (i) the credit quality and historical payment, delinquency, and dilution performance of the portfolio. Trafigura Securitisation Finance PLC's trade receivables have consistently turned within 30 days, delinquencies have averaged a consistent and low percentage of the total pool and dilution is also low; (ii) the short portfolio tenor (on average less than one month) combined with the early amortization triggers strongly protects the transaction to a steep performance deterioration, although the programme revolving period ends in March 2027; (iii) the credit protection, which consists of dynamic over-collateralization with a floor of 15% for the Class A Notes and 9% for the Class B; (iv) Trafigura Group Pte. Ltd. ability to service the portfolio; (v) the appointment of Societe Generale as back-up servicer and matching agent; and (vi) the fact that obligors are directed to pay invoice balances to one collection account that is held in the name of the Issuer.

However, the transaction has several challenging features, such as: (i) a relative high debtor concentration with top 20 final debtors accounting for 42.6% of the receivables balance as of May 2021; (ii) a relative high industrial concentration, as historically at least half of the debtors were payment undertaking providers (i.e. financial institutions), with the remaining being mainly companies active in the oil sector; and (iii) possible maximum limits of 30% of unrated or non investment grade debtors at aggregated level, 70% of debtors rated below A1 and 25% of the debtors could be located in countries with foreign currency rating between Ba1 and B3 during the 5.7 year revolving period.

- Key collateral assumptions:

Mean default rate: Moody's assumed a mean default rate of 0.71% over a weighted average life of 0.5 years which corresponds to a Ba2 proxy rating as per Moody's Idealized Default Rates. This assumption is based on: (1) the available historical vintage data; (2) the performance of the transaction up to now; and (3) the characteristics of the invoice-by-invoice portfolio information, including the counterparty risk assessments of the largest payment undertaking providers and Moody's senior unsecured ratings assigned to the debtors' groups. Moody's took also into account the current economic environment and its potential impact on the portfolio's future performance, as well as industry outlooks or past observed cyclicality of sector-specific delinquency and default rates.

Recovery rate: Moody's assumed a 35% stochastic mean recovery rate, primarily based on the unsecured nature of the trade receivables.

Loss rate volatility: Moody's modelled the portfolio credit risk based on the portfolio as of 28 May 2021. The CDOROM correlation framework reflects the short term, the industrial concentration and country concentration specificities of such portfolio. Moody's analysed historical defaults and rating migrations in the banking, oil, metal, and coal industries and assumed appropriate correlation stresses to reflect the portfolio observed. Moody's modelled the portfolio considering the minimum credit enhancement of 15% for the Class A Notes and 9% for the Class B.

As of 28 May 2021, the trade receivables portfolio was composed of 521 invoices to 138 obligor groups (considering the payment undertakings) amounting to USD 4,483.45 million. The top industry sector in the pool, in terms of Moody's industry classification, is Banking (48.8%). The top final borrower and top 20 final borrowers represents 4.5% and 42.6% of the portfolio, respectively. Finally debtors with a counterparty risk assessment or a senior unsecured rating below Baa3 or unrated and debtors rated below A1 account for around 24.2% and 46.5%, respectively (vs. a limit of 30% and 70%, respectively). Geographically, the pool is concentrated mostly in Singapore (23.9%), Switzerland (12.7%) and United Kingdom (10.1%) considering the domicile of the branch for the financial institutions and of the debtor for the companies. Less than 6.5% of the debtors are domiciled in countries with a foreign currency rating below Baa3 (vs. a limit of 25%).

- Key transaction structure features:

Dynamic credit enhancement: the credit protection consists of over-collateralization provided by a floor of 15% for the Class A Notes and 9% for the Class B, together with a floating level of subordination, based on a dynamic formula and including multiples of past dilution and default performance. As of last interest rate payment date on May 2021, the total credit enhancement amounted to 17.1%.

Reserve fund: A cash reserve is also available as a liquidity source to cover senior fees and coupons.

- Counterparty risk analysis:

Trafigura Group Pte. Ltd. acts as servicer of the trade receivables for the Issuer, while Societe Generale (A1/P-1) acts as back-up servicer in the transaction. Moody's believes that Societe Generale would be able to step in as back-up servicer if needed as it receives daily receivables reporting. Societe Generale also acts as cash manager for Trafigura Securitisation Finance PLC.

The obligors are directed to pay their invoice balances to one collection account that is held in the name of the Issuer with Standard Chartered Bank (A1/P-1), which mitigates commingling risk.

- Principal Methodology:

The principal methodology used in these ratings was "Moody's Approach to Rating Trade Receivables-Backed Transactions" published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1231931. 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 ratings:

The notes' ratings are sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The evolution of the associated counterparties risk, the level of credit enhancement and the various country risk could also impact the notes' ratings.

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.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1294017.

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 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.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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 rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Angel Jimenez
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 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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