GMAC UK PLC (the originator) is an unrated entity, which is wholly owned by GMAC Holdings PLC, which in turn is wholly owned by Ally Financial Inc. (Ally; B+/Positive/C). Ally has extended its U.K. activities since 1920. GMAC UK provides wholesale and retail financing to its dealer network and their customers and it has established underwriting and servicing procedures. Our rating reflects our assessment of the company's origination policies, and our evaluation of its ability to fulfil its role as servicer of the transaction's portfolio. We believe that GMAC UK's high level of experience in auto lending and its well-established underwriting and servicing procedures are commensurate with the ratings assigned to the class A notes.
We have set gross loss base-cases for each of the two sub-pools--comprising new and used vehicles--for hostile terminated receivables and voluntary terminated receivables, taking into account our outlook for the U.K. economy. We have analyzed credit risk based on the application of our European consumer finance criteria, using historical default data provided by GMAC UK (see "European Consumer Finance Criteria," published on March 10, 2000). The transaction's portfolio is static and amortizing, comprising standard fixed-rate fully amortizing new and used auto loans mainly granted to individuals. There are no balloon loans in the portfolio, and as a result, there is no residual value risk.
Cash Flow Analysis
Our rating reflects our assessment of the transaction's payment structure (implemented in accordance with the transaction documents). Our analysis indicates that the credit enhancement available to the rated notes is sufficient to withstand the credit and cash flow stresses that we have applied at a 'AAA' rating level. During the normal amortization period, the transaction has two separate payment waterfalls--for interest and principal, respectively. The class A and subordinated notes amortize sequentially and pari passu among themselves. The transaction features a principal deficiency ledger mechanism to cure defaulted receivables and voluntary terminated receivables by using part of the issuer interest available funds. There is also an amortizing reserve fund, which was funded at closing by the seller. This is available to cover temporary interest shortfalls within first two items of the interest waterfall (the senior expenses and the interest on the class A notes). The transaction also features a principal borrowing mechanism in which principal can make part of the issuer interest available funds to cover any interest shortfalls within the first two items of the interest waterfall.
In line with our approach to scenario analysis, we run two scenarios to test the stability of the assigned ratings (see "Scenario Analysis: Gross Default Rates And Excess Spread Hold The Answer To Future European Auto ABS Performance," published on May 12, 2009). The results show that under the scenario modeling moderate stress conditions (scenario 1), the ratings on the notes would not fall below the maximum projected deterioration that we would associate with each rating level on the one-year horizon, as contemplated in our credit stability criteria (see "Methodology: Credit Stability Criteria," published on May 3, 2010).
Our rating reflects that the replacement mechanisms outlined in the transaction bank account agreement adequately mitigate the counterparty risk in this transaction. The bank account agreement is in line with our 2012 counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on Nov. 29, 2012).
We have assumed the issuer to be a bankruptcy-remote entity, in line with our European legal criteria (see "European Legal Criteria For Structured Finance Transactions," published on Aug. 28, 2012). We have received legal comfort that the sale of the assets would survive the insolvency of GMAC UK as the seller. In our view, set-off risk is mitigated through structural features. Moreover, GMAC UK is not a deposit-taking institution, nor has it provided the securitized loans to its own employees. Commingling risk is assumed to be mitigated through the existence of an adequately sized liquidity reserve, combined with a collection account declaration of trust for the benefit of the issuer.
RELATED CRITERIA AND RESEARCH
-- New Issue: E-CARAT PLC, Dec. 18, 2012
-- The Eurozone Enters An Uncertain 2013 As The New Recession Drags On, Dec. 13, 2012
-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012
-- Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Methodology: Credit Stability Criteria, May 3, 2010
-- Scenario Analysis: Gross Default Rates And Excess Spread Hold The Answer To Future European Auto ABS Performance, May 12, 2009
-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008
-- European Consumer Finance Criteria, March 10, 2000
Asset-Backed Fixed-Rate Notes
Class Rating Amount
A AAA (sf) 500.00
Subordinated NR 74.72