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Rating Action:

Moody's rates Fideicomiso Financiero Cuotas Cencosud Serie IV, a securitization sponsored by Cencosud Argentina

 The document has been translated in other languages

25 Jan 2019

Approximately ARS 485,102,123 of securities rated

Buenos Aires City, January 25, 2019 -- Moody's Latin America Agente de Calificación de Riesgo (Moody's) has rated Fideicomiso Financiero Cuotas Cencosud Serie IV. This transaction will be issued by TMF Trust Company (Argentina) S.A. acting solely in its capacity as issuer and trustee.

This credit rating is subject to the fulfillment of contingencies that are highly likely to be completed, such as finalization of documents and issuance of the securities. This credit rating is based on certain information that may change prior to the fulfillment of such contingencies, including market conditions, financial projections, transaction structure, terms and conditions of the issuance, characteristics of the underlying assets or receivables, allocation of cash flows and of losses, performance triggers, transaction counterparties and other information included in the transaction documentation. Any pertinent change in such information or additional information could result in a change of this credit rating.

The full rating action for the "Fideicomiso Financiero Cuotas Cencosud Serie IV" deal is as follows:

- ARS 440,151,668 in Class A Floating Rate Debt Securities (VDFA), rated Aaa.ar (sf) (Argentine National Scale) and Ba2 (sf) (Global Scale)

- ARS 14,574,558 in Class B Floating Rate Debt Securities (VDFB), rated B1.ar (sf) (Argentine National Scale) and Caa2 (sf) (Global Scale)

- ARS 30,023,591 in Class C Floating Rate Debt Securities (VDFC), rated Caa2.ar (sf) (Argentine National Scale) and Caa3 (sf) (Global Scale)

- ARS 352,306 in Certificates (CP), rated Ca.ar (sf) (Argentine National Scale) and Ca (sf) (Global Scale)

RATINGS RATIONALE

The rated securities are payable from the cash flow derived from the trust assets, which includes a static and amortizing pool of approximately 301,113 eligible purchases in credit card installments denominated in Argentine pesos and originated by Cencosud (Argentina) S.A. ("Cencosud Argentina"), the local subsidiary of Cencosud S.A. ("Cencosud" Baa3, Negative). Cencosud is among Latin America's largest retailers, with presence in Chile, Argentina, Peru, Colombia and Brazil. Only installments payable after March 1st, 2019 will be assigned to the trust.

The assigned installments pertain to credit cards issued by Cencosud Argentina. Cencosud credit cardholders can make purchases in affiliated stores and split the payments in several monthly installments bearing no interest. The monthly installments are detailed in the cardholder's monthly credit card statements. Not all installments due under a given credit card will be assigned to the trust; a given credit card account may also have other installments that do not serve as collateral for this transaction.

In this transaction, the minimum payment level of cardholders' credit card monthly statement will always include 100% of any installments assigned to the trust and due in that month. Therefore, the trust will receive the expected cash flows without any delays as long as the cardholder is considered a performing obligor.

A reserve fund covering two times the next interest accrual of the VDFA and VDFB will be funded using collections received on the pool.

Moody's based the analysis on the following factors: (i) the strong credit profile of Cencosud and Cencosud Argentina and their position as key players in the retail sector of Argentina and the region; (ii) the relatively short expected life of the notes; and (iii) the strong performance of Cencosud's portfolio.

TRANSACTION STRUCTURE

The VDFA will bear a floating interest rate (BADLAR plus 150 bps). The VDFA's interest rate will never be higher than 46.0% or lower than 38.0%. The VDFB will bear a floating interest rate (BADLAR plus 250 bps). The VDFB's interest rate will never be higher than 47.0% or lower than 39.0%. The VDFC will bear a floating interest rate (BADLAR plus 350 bps). The VDFC's interest rate will never be higher than 48.0% or lower than 40.0%.

Overall credit enhancement is comprised of: (i) subordination; ii) overcollateralization and iii) expense reserve accounts. The transaction has initial subordination levels of 24.5% for the VDFA, 22.0% for the VDFB and 16.9% for the VDFC, calculated over the pool's undiscounted principal balance.

Finally, the transaction has an estimated 38.4% of negative annual excess spread, before considering losses, taxes or prepayments and calculated at the interest rate cap for the notes. As mentioned, the assigned monthly installments do not bear interest. Available credit enhancement and a relatively short estimated term of 7 months for Class A largely mitigate this risk.

Moody's analyzed the historical performance data of previous transactions and the dynamic credit card portfolio of Cencosud Argentina, ranging from January 2015 to November 2018.

The rating agency also analyzed the payment levels in the seller's overall credit card dynamic portfolio, identifying a payment rate (monthly payment / monthly balance) averaging 64.4% during the last twelve months as of November 2018.

In assigning the ratings to this transaction, Moody's assumed a lognormal distribution of losses for the static securitized pool with a mean expected loss of 6.3% and a PCE of 15.8% (PCE, or the portfolio credit enhancement, represents the credit enhancement consistent with the highest rating achievable -i.e., the local currency ceiling- in the country). These assumptions were derived considering the historical performance of Cencosud's loan pools and prior transactions.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that may lead to a downgrade of the ratings include a downgrade in Argentina's local currency ceiling and an increase in delinquency levels beyond the level Moody's assumed when rating this transaction. Although Moody's analyzed the historical performance data of previous transactions and similar receivables originated by Cencosud, the actual performance of the securitized pool may be affected, among others, by the economic activity, high inflation rates compared with nominal salaries increases and the unemployment rate in Argentina.

Factors that may lead to an upgrade of the ratings include an upgrade in Argentina's local currency ceiling and the building of credit enhancement over time due to the turbo sequential payment structure, when compared with the level of projected losses in the securitized pool.

The principal methodology used in these ratings was "Moody's Approach to Rating Consumer Loan-Backed ABS" published in September 2015. Please see the Rating Methodologies page on www.moodys.com.ar for a copy of this methodology.

The Credit Rating for Fideicomiso Financiero Cuotas Cencosud Serie IV was assigned in accordance with Moody's existing Methodology entitled "Moody's Approach to Rating Consumer Loan-Backed ABS," published in September 2015. Please note that on November 14, 2018, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Methodology for Consumer Loan-Backed transactions. If the revised Methodology is implemented as proposed, the Credit Rating on Fideicomiso Financiero Cuotas Cencosud Serie IV may be neutrally affected. Please refer to Moody's Request for Comment, titled "Proposed Update to Moody's Approach to Rating Consumer Loan-Backed ABS," for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

For more information on this transaction, please refer to the Regulatory Report to be published on Moodys.com.ar.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.

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.

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 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.ar.

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.

For issuers domiciled in Argentina, the regulatory report related to this rating action is available on www.moodys.com.ar.

Please see www.moodys.com.ar 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.ar for additional regulatory disclosures for each credit rating.

Miguel Grandez Arevalo
Associate Lead Analyst
Structured Finance Group
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 800 666 3506
Client Service: 1 212 553 1653

Karen Ramallo
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 800 666 3506
Client Service: 1 212 553 1653

No Related Data.
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