JPY14.9 billion in Debt Securities affected
Tokyo, January 27, 2021 -- Moody's SF Japan K.K. has assigned provisional ratings to
OAL 2021 backed by auto lease receivables (including leases with maintenance
clauses) originated by Orico Auto Leasing Co., Ltd.
The complete rating action is as follows:
Transaction Name: OAL 2021
Class, Dividend/Interest Rate, Rating
Senior Beneficial Interests, Fixed, (P)Aaa (sf)
ABL, Fixed, (P)Aaa (sf)
Total Issue Amount: JPY14.9 billion
Closing Date: February 25, 2021
Final Maturity Date: April 28, 2028
Underlying Asset: Auto lease receivables
Total Principal Amount of Receivables: JPY16,271,270,023
(financing lease portion)
Seller (Originator / Initial Servicer): Orico Auto Leasing Co.,
Ltd.
Sub Servicer: Orient Corporation
Asset Trustee: Mizuho Trust & Banking Co., Ltd.
Arranger/Underwriter: Mizuho Securities Co., Ltd.
RATINGS RATIONALE
The seller, being both originator and initial servicer (including
maintenance service), entrusts a pool of its auto lease receivables
and cash to the asset trustee, and the asset trustee issues Senior
Beneficial Interests and Subordinated Beneficial Interests, backed
by the finance lease portion of the auto lease receivables, Maintenance
Beneficial Interests and Tax Beneficial Interests backed by maintenance
and taxes related portion, and Cash Reserve Beneficial Interests
backed by cash.
Entrustment of the receivables is perfected against third parties under
the Perfection Law. Perfection against obligors will not be made
until certain events occur.
The asset trustee uses the proceeds from a limited recourse loan ("ABL")
to redeem a portion of the Senior Beneficial Interests.
The seller holds the Subordinated Beneficial Interests, the Maintenance
Beneficial Interests, the Tax Beneficial Interests and Cash Reserve
Beneficial Interests and transfers the remaining Senior Beneficial Interests
to the investors through the underwriter.
The transfer is perfected against relevant obligors and third parties
under Article 94 of Japan's Trust Law.
Credit enhancement is provided by the senior/subordinated structure and
available excess spread. Subordination (excluding that corresponding
to a cash reserve) comprises approximately 8.4% of the total
initial principal balance of the receivables.
The Senior Beneficial Interests and the ABL are redeemed on a monthly
pass-through basis.
The Senior Beneficial Interests and the ABL are structured pari-passu
in the principal and dividend/interest waterfall under the trust agreement.
If any early amortization event occurs, the dividend waterfall to
the Subordinated Beneficial Interests is suspended, and excess spread
is used to redeem the Senior Beneficial Interests and the ABL.
Key early amortization events include a servicer replacement event occurring,
or asset performance triggers being reached.
Defaulted receivables in the underlying pool are used as payment in kind
for dividends on the Subordinated Beneficial Interests, while cash
in an amount equivalent to the principal balance of the defaulted receivables
is transferred from the interest collection account to the principal collection
account (default trapping mechanism).
In preparation for servicer replacement, liquidity is provided in
the form of a cash reserve at closing. This reserve covers scheduled
dividend/interest payments on the Senior Beneficial Interests and the
ABL, and trust fees, and fees relating to the start of back-up
servicer operations.
A back-up servicer is not appointed at closing. If any back-up
servicer appointment events occur, the asset trustee appoints a
back-up servicer. If any servicer replacement events occur,
the asset trustee appoints one, and enters into the back-up
servicing agreement.
A back-up maintenance servicer is not appointed at closing.
If any back-up maintenance servicer appointment events occur,
the asset trustee appoints one. If any back-up maintenance
servicer replacement events occur, the asset trustee delegates the
maintenance operations to the back-up maintenance servicer.
Commingling risk is covered by the Subordinated Beneficial Interests.
The ratings are based mainly on the credit quality of the receivables,
the transaction structure, and the servicer and sub-servicer's
experience.
Moody's estimated the annualized expected default rate of the underlying
assets at 0.6% (Cumulative expected default rate:
approximately 1.77%, Aaa credit enhancement:
approximately 10.8%), after taking into consideration
the receivable attributes, historical data on the seller's
entire pool, ABS performance data, and industry trends.
The expected default rate is based on the default definition used in Moody's
analysis and may not be comparable to other rates.
To determine the ratings, Moody's also conducted a cash flow
analysis in which it added stress consistent with the assigned ratings
on parameters such as the expected default rate.
Moody's assumes that, given the structure of the transaction
as well as other factors, the risk of interruption to the cash flow
from the assets in the event of the seller's or the asset trustee's
bankruptcy is sufficiently minimized to achieve the ratings assigned.
Moody's considers the seller sufficiently capable of servicing the pool,
after having taken into account the seller and sub-servicer's
business experience and the servicing operations.
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Auto Loan- and Lease-Backed ABS"
(Japanese) published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1236205.
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 primary factor that could lead to a downgrade of the ratings is worse
performance of the underlying assets than Moody's expected.
Moody's has also conducted the sensitivity analysis below which
provides the number of notches by which the model-indicated output
of the deal would have varied if different assumptions had been made as
to certain key model parameters. The analysis assumes that the
deal has not aged.
If the expected default rate was changed from 0.6% to 0.9%
and 1.2% and other assumptions remained unchanged,
the model-indicated output of Senior Beneficial Interests and ABL
would change by 1 and 1 notch respectively.
The analysis results are model-indicated outputs, which are
one of the many quantitative and qualitative factors considered by rating
committees in determining actual ratings. This analysis does not
intend to measure how the rating of the deal might migrate over time,
but rather, how the initial model-indicated output of the
deal might have differed if certain key model parameters had been varied.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of consumer assets from the
current weak Japanese economic activity and a gradual recovery for the
coming months. Although an economic recovery is underway,
it is tenuous and its continuation will be closely tied to containment
of the virus. As a result, the degree of uncertainty around
our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
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
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 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 EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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.
Moody's SF Japan K.K. is a registered credit rating agency
under the Financial Instrument and Exchange Act but not a Nationally Recognized
Statistical Rating Organization ("NRSRO"). Therefore the credit
ratings assigned by Moody's SF Japan K.K. are Registered
Credit Ratings to the FSA, but are not NRSRO Credit Ratings.
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.
Atsushi Karikomi
VP - Senior Credit Officer
Structured Finance Group
Moody's SF Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
Yusuke Seki
Associate Managing Director
Structured Finance Group
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
Releasing Office:
Moody's SF Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
