RPT-Fitch assigns SCF Rahoituspalvelut 2013 Limited's notes expected rating
Sept 19 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned SCF Rahoituspalvelut 2013 Limited's notes, backed by Finnish auto loan receivables originated by Santander Consumer Finance Oy (SCF Oy, not rated), expected ratings, as follows:
EUR TBC class A, due in May 2021: 'AAAsf(EXP)'; Outlook Stable
EUR TBC class B, due in May 2021: 'Asf(EXP) ';Outlook Stable
EUR TBC class C, due in May 2021; 'NR(EXP) '
The final ratings are contingent upon the receipt of final documents and legal opinions conforming to the information already received.
KEY RATING DRIVERS
The rating is based on Fitch's assessment of SCF Oy's origination and servicing procedures, Fitch's expectations of future asset performance in light of its economic expectations for Finland, the available credit enhancement, and the transaction's legal structure. SCF Oy is a 100% subsidiary of Norway-based Santander Consumer Bank AS, which is a 100% subsidiary of Santander Consumer Finance, S,A. (SCF, 'BBB+'/Negative/'F2').
Credit enhancement (of 17% for class A and 7.5% for the class B notes) is provided by the overcollateralisation through subordination of the notes junior to the respective class as well as the reserve fund (2.5%). A liquidity reserve provides liquidity coverage to the class A note and, prior to a principal deficiency trigger breach, the class B note. Timely payment on class B is only achieved in rating scenarios 'A'sf and below, to which the rating is capped. The liquidity reserve has a 0.50% floor as long as the class A and B notes have not been paid in full.
Fitch has used a default assumption of 2.5% and high stresses (6.5x for 'AAAsf' and 3.9x in 'Asf'), considering the presence of balloon payments and still limited data history together with the low default base case and the relatively late default definition (earlier of 180 calendar days, write-off or bankruptcy). Recoveries achieved by SCF Oy are the highest seen for European auto ABS, with recoveries of over 75% in 2009 to 2012. Fitch has used a recovery assumption of 70% which was stressed with a high recovery haircut (60% for 'AAAsf' and 36% for 'Asf'). This reflects the small market size, the sensitivity of used car prices to changes in the (up front) vehicle taxation, as well as the risk posed by the governmental valuation mechanism.
Over the past few quarters Finland has suffered from weak economic growth and slightly increasing unemployment. Economic growth, though at a low level is expected to return in late 2013 / early 2014. During 2013-2014, Fitch expects a stable level of unemployment and interest rates, with auto loan performance stable compared to historic levels.
Fitch tested the rating sensitivity of the class A and B notes to various scenarios, including an increase in the base case default rate and/or a decrease in the base case recovery rate for the portfolio. Fitch for example noted that an increase in the base case default rate by 50% together with a decrease in the base case recovery rate by 50% would result in a two-notch downgrade of the class A notes to 'AAsf(EXP)' from 'AAAsf(EXP)' and a three-notch downgrade of the class B notes to 'BBBsf(EXP)' from 'Asf(EXP)'.
A presale report, including further information on transaction related stress and sensitivity analysis, and material sources of information that were used to prepare the credit rating is available at www.fitchratings.com.
Link to Fitch Ratings' Report: SCF Rahoituspalvelut 2013 Limited
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