Approximately GBP 352 Million of UK Auto ABS Notes rated
London, 25 November 2010 -- Moody's Investors Service has assigned the following provisional ratings
to notes to be issued by Turbo Finance plc (the "Issuer"):
- (P)Aaa (sf) to the GBP 289.00 million Class A Notes due
- (P)Aa3 (sf) to the GBP 63.60 million Class B Notes due
Moody's has not assigned ratings to the subordinated GBP 40.26
million Class C Notes and GBP 6.40 million Class D Notes.
The proceeds of the Class D Notes will be applied to fund the reserve
fund in the transaction.
Moody's issues provisional ratings in advance of the final sale of securities
and the above rating reflects Moody's preliminary credit opinions regarding
the transaction only. Upon a conclusive review of the final documentation
and the final note structure, Moody's will endeavor to assign a
definitive rating to the above notes. A definitive rating may differ
from a provisional rating.
The transaction is a static cash securitisation of auto leases extended
to obligors in United Kingdom by Carlyle Finance, a division of
FirstRand Bank Limited, London Branch (A3/P-1/C-,
stable outlook) ("FRB London"). This is the first public
securitisation transaction in the United Kingdom sponsored by FRB London.
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 leases granted
to individuals and companies 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. Certain
leases in the portfolio are also exposed to balloon payments, although
the balloon portion is very limited in the portfolio. As of 30
October 2010, the portfolio consists of approximately 71,705
lessees. The loans were originated between 2005 and 2010,
with a weighted average seasoning of 11 months and a weighted average
remaining term of 39 months.
According to Moody's, the transaction benefits from credit strengths
such as a granular portfolio, relatively simple waterfall and a
1.63% reserve fund which is fully funded at closing and
is available to cover any liquidity shortfalls throughout the life of
the transaction and credit enhancement at the end. In addition,
the transaction benefits from back-up servicing arrangements which,
in Moody's opinion, significantly reduces the linkage of the
transaction to FRB London as servicer. In addition, Finsolutia
Consultoria e Gestao de Creditos S.A. will be appointed
as standby-servicer facilitator at closing of the transaction to
facilitate the appointment of a standby-servicer following the
downgrade of FRB London 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")
by the obligor if the obligor has made payments equal to at least one
half of the total amount which would have been payable under the contract
and returns the vehicle to the lessor. Moody's did not receive
gross VT default data from the originator, but only net VT default
data (i.e. with recoveries included). In addition,
Moody's did not receive static recovery but only dynamic recovery
data for the entire portfolio. These aspects were factored in Moody's
overall analysis and in the V-score below.
Moody's analysis focused, among other factors, on (i) an evaluation
of the underlying portfolio of loans; (ii) historical performance
information; (iii) 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; (viii) the independent cash manager and back-up
calculation agent and (viii) the legal and structural integrity of the
Moody's assumed a gross loss rate of 5.5% for the entire
pool, which takes into account both defaults arising from normal
defaults by the obligors and losses arising from the exercise of the obligor
of . A coefficient of variation of 50% is used as the other
main input for Moody's cash flow model ABSROM. Whilst the historical
default rate for older vintages showed default rates higher than the assumed
gross loss level, Moody's has given benefit to the lower default
rate observed in more recent vintages as a result of updated underwriting
methods used by the originator. Commingling risk and set-off
risk is assessed to be commensurate with the ratings assigned on the Notes.
The V-score analysis for the transaction is Medium. Due
to a lack of the UK auto lease sector V-score, Moody's
has compared the transaction v-score with the German auto lease
sector scores. The main contribution to an overall Medium V-score
assessment for the transaction is from the assessment on the quality of
historical data received from the transaction parties. 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 ratings address 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 and ultimate payment of interest and principal with
respect to the B Notes by the legal final maturity. 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 to investors.
Moody's used its excel based cash-flow model Moody's ABSROM™
as part of its quantitative analysis of the transaction. Moody's
ABSROM™ model enables users to model various features of a standard
European ABS transaction -- including the specifics of the
default distribution of the assets, their portfolio amortisation
profile, yield, as well as the specific priority of payments,
swaps and reserve funds on the liability side of the ABS structure.
Moody's ABSROM™ User Guide, available on Moody's website,
covers the functionality of the model and provides a comprehensive index
of the user inputs and outputs.
In rating auto ABS, loss rate and co-efficient of variation
are two key inputs that determine the lognormal distribution. Parameter
sensitivities for this transaction have been tested in the following manner:
Moody's tested nine scenarios derived from the combination of mean loss:
5.50% (base case), 6.50% (base case
+0.50%), 7.50% (base case +1.0%)
and recoveries: 35% (base case), 30% (base case
-5%), 25% (base case -10%).
The model output results for Class A under these scenarios vary from Aaa
(base case) to Aa3 (3 notches where the loss rate is 7.50%
and the recovery is 25%). The Class B output results under
these scenarios vary from Aa3 to Baa2 (5 notches where the loss rate is
7.50% and the recovery is 25%). 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.
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,
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
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for further information.
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
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Senior Vice President
Structured Finance Group
Moody's Italia S.r.l
Moody's Investors Service Ltd.
Moody's assigns provisional ratings to Auto ABS to be issued by Turbo Finance plc
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