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30 Apr 2009
$25.62 billion of related Asset-Backed Securities.
New York, April 30, 2009 -- Today, Chrysler LLC ("Chrysler") announced that it has
filed a petition under Chapter 11 of the U.S. Bankruptcy
Code. This event has varying implications for the performance and
ratings of vehicle-related Asset-Backed Securities ("ABS").
The following provides a commentary on the ABS asset classes affected
by Chrysler's bankruptcy in the U.S. and Canada.
None of the transactions rated by Moody's in Europe and Asia is
directly exposed to the bankruptcy of the manufacturer.
Auto loans and leases
Moody's has taken several actions on auto loan and lease securitizations
sponsored by Chrysler Financial Services Americas LLC ("Chrysler
Financial") over the past six months. The actions on these
securitizations were driven by the performance of the underlying pools,
as well as by the heightened risk of a bankruptcy of the manufacturer
and the impact that a bankruptcy would likely have on used vehicle prices.
The most recent rating actions have taken into consideration a high likelihood
of a Chapter 11 bankruptcy filing by Chrysler. Therefore,
no further rating actions are being taken on the above transactions today,
although several ratings (a total of eight tranches issued from six separate
transactions) remain under review for possible downgrade. The ratings
may come under pressure if the decline in vehicle prices throughout the
duration of the bankruptcy is greater than our expectation or if the reorganization
is unsuccessful and is followed by liquidation.
We believe that new and used vehicle prices are likely to decline as a
consequence of Chrysler's bankruptcy. The manufacturer may
be motivated to heavily discount new vehicles to encourage sales;
the discounted new vehicles would negatively impact used car resale values.
A bankruptcy may also raise concerns over the continuation of existing
The risk that collateral value, as reflected by used vehicle prices,
will decline is a key driver that will magnify losses in both retail auto
loan and lease ABS to varying degrees. In auto loan ABS,
generally a limited percentage of the collateral pool is subject to repossession
and resale and therefore exposed to market value risk, since only
a fraction of the loan pool will default. However, with respect
to auto lease ABS, 80% to 90% of the manufacturer's
leased vehicles are turned in at lease termination. Turn-in
rates are also likely to increase further when car prices decline,
as the lessee's purchase option becomes more expensive than prevailing
In response to the heightened risk of a manufacturer bankruptcy,
as well as the higher than expected residual value losses experienced
to date, Chrysler Financial's auto lease securitizations (Chrysler
CA Lease Receivables Trust II, CALN2 Notes and Chrysler CA Lease
Receivables Trust II, CALW2 Notes) were downgraded on November 25,
2008, on January 14, 2009, and again on April 29,
2009. The ratings (currently Baa3 and Ba3 for the CALN2 and CALW2
transactions, respectively) remain under review for possible further
The actions on the ratings of auto loan transactions have been relatively
less severe than those on the lease deals. Auto loan ABS account
for the majority of Moody's-rated outstanding securitizations
sponsored by Chrysler Financial. Out of 29 outstanding tranches
issued in six term retail auto loan transactions rated from 2005 through
2008, we have downgraded the ratings of nine tranches in three transactions
issued in 2007 and 2008. The rating review that concluded on February
18, 2009 with the downgrade actions was driven by worse than expected
performance of the loan pool, and particularly the higher than expected
borrower default rate. Lower recoveries compared to historical
rates have contributed to boosting overall losses. The deterioration
in these transactions has outpaced that of other recent vintage prime
auto loan pools and is also not reflective of the general performance
of prime auto loan transactions from other U.S. or foreign
Mezzanine and subordinate notes in the same three transactions were placed
under review for possible downgrade on April 29, 2009. In
addition, the public rating on one auto loan warehouse transaction
(Chrysler Retail Trust II) rated in 2008 was also placed under review
for downgrade. These ratings are relatively more sensitive than
those of other Chrysler auto loan ABS to a significant decrease in recovery
rates on repossessed vehicles, as the projected defaults are higher
for those deals.
We expect that the administration will take steps to contain the disruption
that might be caused by the bankruptcy, including providing government-funded
debtor in possession financing during the bankruptcy process. These
government actions may contain the extent of future vehicle price declines
to some degree. In addition, we expect that Chrysler Financial
will continue servicing its existing loan and lease portfolio throughout
the bankruptcy process to preserve the value of its residual interest
in the transactions. As a consequence, servicing disruption
is likely to be immaterial for both loan and lease ABS transactions at
this stage. Avoiding servicer disruption is central to lease ABS
performance as a higher percentage of vehicles needs to be auctioned.
Moody's most recently took rating actions on floorplan transactions
sponsored by Chrysler Financial in the US and Canada in April 2009.
Specifically, in the US, Class A notes of Master Chrysler
Financial Owner Trust Series 2006-A and Series 2008-B were
downgraded to B2 and Baa3 from Baa3 and A1, respectively,
and remain under review for further possible downgrade. In Canada,
the ratings of senior notes issued under Canadian Revolving Auto Floorplan
Trust Series 2007-D1, D2, and D3 were all downgraded
to Ba1 from Aa3 and remain under review for further possible downgrade.
The most recent rating actions took into consideration a high likelihood
of a Chapter 11 bankruptcy filing by Chrysler. Therefore,
no further rating actions are being taken on those transactions as of
Ratings for the floorplan notes remain on review for further possible
downgrade due to the significant uncertainty surrounding the floorplan
transactions in the near term. A Chrysler bankruptcy filing could
lead to high dealer default rates, depressed collateral recovery
values, and could severely constrain the servicer's ability
to monitor dealers and secure collateral if numerous dealers default in
a short period of time. Moody's will continue to monitor
developments and will further assess the potential impact on Chrysler
Financial's outstanding floorplan transactions as necessary.
The uncertainty related to potential developments, particularly
the potential for a subsequent Chapter 7 filing by Chrysler at a later
time, underlies the continued review process for the transactions.
Rental car ABS have varying amounts of exposure to Chrysler due to the
presence of Chrysler-manufactured vehicles in the rental car fleets
that serve as collateral for the securities. The residual values
of those vehicles may suffer following a Chrysler bankruptcy filing.
Any such lowering of collateral value exposes rental car ABS holders to
greater possible loss in the event of a default by the sponsoring rental
car company. In addition, such a decline in vehicle values
may itself increase the risk of default of the sponsoring rental car company.
All but one of the rental car ABS issuers are well-diversified
among manufacturers and have only modest exposure to Chrysler.
The exception is Rental Car Finance Corp. (RCFC), sponsored
by Dollar Thrifty, where Chrysler vehicles represent approximately
three-quarters of the fleet collateral. The underlying ratings
of the RCFC rental car ABS were downgraded on January 27, 2009 to
the Caa category, and already factor in a high likelihood of a Chrysler
bankruptcy filing. As such, downward ratings movement as
a result of the actual filing is anticipated to be minimal to none.
No other rating actions related to rental car ABS solely as a result of
this filing are expected.
Structured Finance Group
Moody's Investors Service
Moody's comments on ABS following Chrysler bankruptcy
Luisa De Gaetano
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
No Related Data.
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