GBP 138 million ABS notes rated, relating to a portfolio of UK unsecured consumer loans
Frankfurt am Main, September 20, 2016 -- Moody's Investors Service has assigned the following provisional ratings
to notes to be issued by Marketplace Originated Consumer Assets 2016-1
plc ("Moca 2016-1"):
....GBP[114.0] million Class A
Notes due October 2024, Assigned (P)Aa3 (sf)
....GBP[7.5] million Class B Notes
due October 2024, Assigned (P)A2 (sf)
....GBP[7.5] million Class C Notes
due October 2024, Assigned (P)Baa2 (sf)
....GBP[9.0] million Class D Notes
due October 2024, Assigned (P)Ba3 (sf)
GBP[12.0] million Class Z Notes will not be rated.
RATINGS RATIONALE
Today's provisional rating assignments reflect the transaction's structure
as a static cash securitisation of unsecured consumer loans, originated
through a marketplace lending online platform in the UK. Zopa Limited
("Zopa") (not rated) operates the platform and manages the underwriting
process. P2P Global Investments PLC (not rated) was the initial
lender of the securitised loan portfolio. The platform provider,
Zopa, also acts as the servicer of the portfolio. Target
Servicing Limited (not rated) has been appointed as back-up servicer
of the transaction.
The securitised portfolio as of 31 August 2016 consists of unsecured consumer
loans to UK private borrowers. According to the borrower but not
verified by the platform provider these loans are mainly used to finance
cars (36.2%), for debt consolidation (34.0%)
and for home improvements (22.3%). The portfolio
consists of 27,137 contracts with a weighted average seasoning of
10 months and a maximum loan term of five years. Most borrowers
are employed full-time (89.9%) and their average
outstanding loan balance with Zopa is GBP 5,500.
According to Moody's, the transaction benefits from: (i) a
granular portfolio originated through the Zopa marketplace lending platform,
(ii) a static structure that does not allow to buy additional receivables
after closing, (iii) continuous portfolio amortization from day
one, (iv) an independent cash manager and liquidity provided through
two reserve funds, (v) an appointed back-up servicer at closing,
and (vi) credit enhancement provided through subordination of the notes,
reserve funds and excess spread.
Moody's notes that the transaction may be negatively impacted by:
(i) misalignment of interest between the platform provider Zopa and investors
who finance the loans, (ii) the fact that Zopa does not retain a
direct economic interest in the securitized portfolio, (iii) the
limited historical data that does not cover a full economic cycle,
(iv) a higher fraud risk due to the online origination process,
(v) an unrated servicer with limited financial strength, and (vi)
the regulatory uncertainty due to the still developing regulation for
the marketplace lending segment.
Moody's analysis focused, amongst other factors, on (i) historical
performance data, (ii) the loan-by-loan data for the
securitised portfolio including internal and external credit scores,
(iii) the credit enhancement provided by subordination, the reserve
fund and excess spread, (iv) the liquidity support available in
the transaction by way of principal to pay interest and the liquidity
reserve for the most senior outstanding class of notes, and (v)
the appointment of the back-up servicer at closing.
MAIN MODEL ASSUMPTIONS
Moody's determined the portfolio lifetime expected defaults of 7.0%,
expected recoveries of 5% and Aaa portfolio credit enhancement
("PCE") of 35.0% related to the loan portfolio.
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 default distribution curve and to
associate a probability with each potential future default scenario in
the ABSROM cash flow model to rate Consumer ABS.
Portfolio expected defaults of 7.0% are higher than the
EMEA consumer loan average and are based on Moody's assessment of the
lifetime expectation for the pool taking into account (i) limited historical
performance data of the loan book of the originator, (ii) benchmark
transactions, (iii) the current economic uncertainty in the UK,
and (iv) a rather new originator with a new business concept compared
to classical loan origination.
Portfolio expected recoveries of 5% are lower than the EMEA consumer
loan average for unsecured consumer loans and are based on Moody's assessment
of the lifetime expectation for the pool taking into account (i) the limited
strength and experience of the servicer (ii) historical performance of
the loan book of the originator, and (iii) benchmark transactions.
The Aaa PCE of 35.0% is higher than the EMEA consumer loan
average and is based on Moody's assessment of the pool taking into account
the relative ranking of the platform provider to originator peers in the
EMEA consumer loan market. The PCE level of 35.0%
results in an implied coefficient of variation ("CoV") of
40.8%.
METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating Consumer Loan-Backed ABS" published in September 2015.
Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
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 on the class A notes and the ultimate
payment of interest and principal at par on the class A to D notes,
on or before 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 issues provisional ratings in advance of the final sale of securities
and the above ratings reflect Moody's preliminary credit opinion regarding
the transaction only. Upon a conclusive review of the final documentation
and the final note structure, Moody's will endeavour to assign a
definitive rating to the above notes. A definitive rating may differ
from a provisional rating.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
FACTORS THAT WOULD LEAD TO AN UPGRADE OF THE RATINGS:
Significantly better-than-expected performance of the securitised
portfolio would lead to an upgrade of the ratings, all else being
equal.
FACTORS THAT WOULD LEAD TO A DOWNGRADE OF THE RATINGS:
Factors that may cause a downgrade of the rated notes include: (i)
a decline of the performance of the pool beyond our expectations,
(ii) a significant deterioration of the credit profile of the servicer,
or (iii) unexpected, negative changes in the regulatory or market
environment of the marketplace lending segment.
LOSS AND CASH FLOW ANALYSIS:
Moody's used its 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 loss distribution of the assets,
their portfolio amortisation profile and yield. On the liability
side of the ABS structure subordination and reserve fund.
STRESS SCENARIOS:
In rating consumer loan ABS, default rate and recovery rate are
two key inputs that determine the transaction cash flows in the cash flow
model. Parameter sensitivities for this transaction have been tested
in the following manner: Moody's tested six scenarios derived from
a combination of mean default rate: 7.0% (base case),
7.5% (base case + 0.5%), 8.0%
(base case + 1.0%) and recovery rate: 5.0%
(base case), 0% (base case - 5%).
The model output results for the class A notes under these scenarios vary
from Aa3 (base case) to A2 assuming the mean default rate is 8.0%
and the recovery rate is 0%, all else being equal.
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 for the class
A notes might have differed if the two parameters within a given sector
that have the greatest impact were varied. Model output results
for the class B to D notes are shown in the pre-sale report for
this securitization.
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 describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
Moody's describes the stress scenarios it has considered for this
rating action in the section "Ratings Rationale" of this press
release.
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.
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.
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
SUBSCRIBERS: 44 20 7772 5454
Anthony Parry
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
