July 14, 2014 / 1:21 PM / 3 years ago

RPT-Fitch Upgrades E-Carat S.A., Compartment 4 Class B Notes to 'AAAsf'

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July 14 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has upgraded E-Carat S.A., Compartment 4's class B notes' rating while affirming the class A notes' rating, as follows:

EUR135m class A notes (ISIN: XS0782698988), due July 2020: affirmed at 'AAAsf'; Outlook Stable

EUR24.1m class B notes (ISIN: XS0782699952), due July 2020: upgraded to 'AAAsf' from 'AA-sf'; Outlook Stable

The transaction is a static true sale securitisation of loans granted to German clients. Since December 2013, the originator, GMAC Bank GmbH (BB+/Positive/B) is an indirect wholly-owned subsidiary of GM Europe Service GmbH (GM Europe).

Key Rating Drivers

The upgrade of the class B notes reflects an increase in credit enhancement as a result of swift portfolio amortisation and the portfolio's solid performance since issue in August 2012.

In Fitch's view, the stable labour market in Germany with a moderate unemployment rate supports a limited increase in defaults. Furthermore, the transaction has been reporting low delinquencies.

The portfolio had amortised down to EUR180.5m as of the May 2014 portfolio data from the original amount of EUR395.5m in August 2012. The portfolio's composition has remained largely unchanged over the last 12 months with the exception of a slight increase of balloon loans to 92.6% from 90%. This is due to proportionally smaller amortisations before maturity of this loan type compared with amortising loans. The agency has taken the balloon risk into consideration.

The proceeds from pool amortisation have been applied to redeem the senior class A notes, which has led to an increase in credit enhancement for the class A notes to 27.1% from 13.4% and to 13.8% from 7.3% for the class B notes since issue. Fitch views the strictly sequential amortisation of the notes as the transaction's strength by further increasing credit enhancement.

The reported defaults and losses have been lower than Fitch's expectations. Therefore, we have revised our default rate expectation for the transaction's life to 1% from 2%.

Rating Sensitivities

The ratings would be sensitive to a sharp increase in the unemployment rate causing significantly higher default rates. However, the transaction has built up credit enhancement through deleveraging, which would reduce downward pressure on the rated notes resulting from an unlikely increase in unemployment rate and defaults.

The ratings would also be sensitive to significantly lower-than-expected recoveries from defaulted loans, e.g. in case of a severe downturn of the German used car market.

Expected impact upon the note rating of increased defaults and reduced recoveries:

Class A:

Current Rating: 'AAAsf'

Increase base case defaults by 25%: 'AAAsf'; reduce base case recoveries by 25%: 'AAAsf'

Class B:

Current Rating: 'AAAsf'

Increase base case defaults by 25%: 'AAAsf'; reduce base case recoveries by 25%: 'AAAsf'

Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue report published on 29 August 2012.

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