Approximately $76.9 million of asset-backed securities affected
Toronto, April 16, 2021 -- Moody's Investors Service, ("Moody's") has
upgraded five tranches from four Canadian Pacer Auto Receivables Trusts
(CPART) issued in 2018, 2019 and 2020. The notes are backed
by pools of retail automobile loan contracts originated and serviced by
Bank of Montreal (Aa2, P-1).
The complete rating actions are as follows:
Issuer: Canadian Pacer Auto Receivables Trust 2018-1
Class C Notes, Upgraded to Aaa (sf); previously on Dec 17,
2020 Upgraded to Aa1 (sf)
Issuer: Canadian Pacer Auto Receivables Trust 2018-2
Class C Notes, Upgraded to Aa3 (sf); previously on Dec 17,
2020 Upgraded to A2 (sf)
Issuer: Canadian Pacer Auto Receivables Trust 2019-1
Class C Notes, Upgraded to Aa3 (sf); previously on Dec 17,
2020 Upgraded to A2 (sf)
Issuer: Canadian Pacer Auto Receivables Trust 2020-1
Class B Notes, Upgraded to Aaa (sf); previously on Dec 17,
2020 Upgraded to Aa1 (sf)
Class C Notes, Upgraded to A2 (sf); previously on Feb 4,
2020 Definitive Rating Assigned A3 (sf)
RATINGS RATIONALE
The upgrades were prompted by the build-up of credit enhancement
owing to sequential pay structure and non-declining reserve accounts.
The rating upgrades also reflect our updated lifetime cumulative net loss
expectation which is 0.40% for CPART 2018-1,
0.85% for CPART 2018-2, 0.65%
for CPART 2019-1 and 0.70% for CPART 2020-1.
The loss expectations consider updated performance trends on the underlying
pools and the increased likelihood of defaults by borrowers affected by
a slowdown in the economic activity due to the coronavirus outbreak.
However, more recently consumers have shown a high degree of resilience
owing to the government stimulus and borrower relief options offered by
the servicers.
The COVID-19 pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven effects
on individual businesses, sectors and regions will continue throughout
2021 and will endure as a challenge to the world's economies well
beyond the end of the year. While persistent virus fears remain
the main risk for a recovery in demand, the economy will recover
faster if vaccines and further fiscal and monetary policy responses bring
forward a normalization of activity. As a result, there is
a heightened degree of uncertainty around our forecasts.
Our analysis has considered the effect on the performance of consumer
assets from a gradual and unbalanced recovery in Canadian economic activity.
Specifically, for auto loan ABS, loan performance will continue
to benefit from government support and the improving unemployment rate
that will support the borrower's income and their ability to service
debt. However, any softening of used vehicle prices will
reduce recoveries on defaulted auto loans. Furthermore, any
elevated use of borrower assistance programs, such as extensions,
may adversely impact scheduled cash flows to bondholders.
We regard the COVID-19 outbreak as a social risk under our ESG
framework, given the substantial implications for public health
and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Auto Loan- and Lease-Backed ABS"
published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1202515.
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:
Up
Levels of credit protection that are greater than necessary to protect
investors against current expectations of loss could lead to an upgrade
of the ratings. Losses could decline from Moody's original expectations
as a result of a lower number of obligor defaults or greater recoveries
from the value of the vehicles securing the obligors promise of payment.
The Canadian job market and the market for used vehicles are also primary
drivers of the transaction's performance. Other reasons for better-than-expected
performance include changes in servicing practices to maximize collections
on the loans or refinancing opportunities that result in a prepayment
of the loan.
Down
Levels of credit protection that are insufficient to protect investors
against current expectations of loss could lead to a downgrade of the
ratings. Losses could increase from Moody's original expectations
as a result of a higher number of obligor defaults or a deterioration
in the value of the vehicles securing the obligors promise of payment.
The Canadian job market and the market for used vehicles are also primary
drivers of the transaction's performance. Other reasons for worse-than-expected
performance include poor servicing, error on the part of transaction
parties, lack of transactional governance and fraud.
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.
Moody's either did not receive or take into account one or more
third-party due diligence assessment(s) regarding the underlying
assets or financial instruments (the "Due Diligence Assessment(s)")
in this credit rating action.
The Due Diligence Assessment(s) referenced herein were prepared and produced
solely by parties other than Moody's. While Moody's
uses Due Diligence Assessment(s) only to the extent that Moody's
believes them to be reliable for purposes of the intended use, Moody's
does not independently audit or verify the information or procedures used
by third-party due-diligence providers in the preparation
of the Due Diligence Assessment(s) and makes no representation or warranty,
express or implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose
of the Due Diligence Assessment(s).
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each 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.
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.
Siddharth Lal
Analyst
Structured Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Deepika Kothari
Senior Vice President
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
