TEXT-Fitch assigns Turbo Finance 3 plc's notes final ratings
Nov 22 - Fitch Ratings has assigned Turbo Finance 3 Plc's notes the following final ratings:
GBP273.4m Class A: 'AAAsf'; Outlook Stable
GBP27.8m Class B: 'A+sf'; Outlook Stable
GBP26.2m Class C: NR
GBP5.3m Class D: NR
The notes are backed by UK auto loan receivables originated by FirstRand Bank Limited, London Branch (FRB, 'BBB+'/Negative/'F2'). The ratings are based on Fitch's assessment of FRB's origination and servicing procedures, the agency's expectations of future asset performance, the available credit enhancement (CE), and the transaction's legal structure.
At closing, the proceeds of the class A to C notes were used to purchase an amortising pool of UK auto loan receivables originated by FRB via car dealers and specialised car finance brokers under the trading name of MotoNovo (which was known as Carlyle Finance prior to 14 February 2012). MotoNovo was acquired by FRB in 2006 and is the fifth-largest provider of point-of-sale car finance within the UK. The proceeds of the class D notes have been used to fund the reserve account.
CE is provided via overcollateralisation provided by subordination of the junior notes and a cash reserve account funded at closing. The class A notes benefit from 18.11% CE (16.5% overcollateralisation, 1.6% cash reserve) and the class B notes from 9.62% CE (8.0% overcollateralisation, 1.6% cash reserve).
The issuer entered into a fixed/floating rate swap agreement with J. P. Morgan Securities plc ('A+'/Stable/'F1+') to hedge the interest rate mismatch in relation to the class A and B notes. BNP Paribas Security Services, London Branch ('A+'/Stable/'F1+') acts as account bank to the issuer.
Fitch analysed a preliminary portfolio, which as at 31 October 2012, comprised 57,434 loans with an average current balance of GBP5,672. The portfolio consists primarily of used car loans (92.1% by balance), with a weighted average seasoning of 11 months and a weighted average remaining term of 40 months. The portfolio is diverse with respect to regional and manufacturer distribution.
FRB acts as servicer to the transaction out of centralised operations based in Cardiff, Wales. The transaction also benefits from a back-up servicer (BUS), Homeloan Management Ltd (unrated), which is contracted to board the portfolio and commence servicing within 60 days of invocation of the BUS agreement. Fitch considers the implementation of a BUS positive for the transaction to reduce payment interruption and liquidity risks.
Fitch analysed obligor credit risk by forming base case default and recovery assumptions and then stressing these assumptions according to the rating of each note. Although the underlying contracts do not feature any direct residual value risk, Fitch notes that around 94.6% of the underlying receivables are regulated by the Consumer Credit Act and are therefore exposed to voluntary termination (VT) losses. In Fitch's opinion, average used car values, original loan-to-value ratios and original loan tenors are key drivers of VT risk. Fitch formed a view on the extent of VT losses by estimating the future car values relative to loan balances in different rating scenarios.
In common with other UK auto loan ABS transactions, the title to the underlying vehicle will be retained by the originator. However, the issuer has the right to receive all sale proceeds from the vehicles. Based on the transaction's structure, specifically the provision for an administrator recovery incentive payment of 2.5%, Fitch's quantitative analysis has assumed that the issuer will be able to realise sale proceeds from defaulted and voluntarily terminated vehicles.
Fitch has a stable asset and rating performance outlook for the UK auto ABS sector. Fitch considers that unemployment levels as well as used car value are key drivers of asset performance.
A new issue report is available at www.fitchratings.com.
Link to Fitch Ratings' Report: Turbo Finance 3 plc