Dec 28 -
-- Based on our review of the transaction’s performance and our view of the stabilizing German economy, we have lowered our gross loss expectations for Asset Backed European Securitisation Transaction Five.
-- We have therefore raised to ‘AA (sf)’ from ‘A+ (sf)’ our rating on the class B notes and affirmed our ‘AAA (sf)’ rating on the class A notes, to reflect the increased credit enhancement and our view that the transaction’s performance is performing better than our expectations.
-- FGA Bank Germany originated the auto loan receivables that back this German ABS transaction.
Standard & Poor’s Ratings Services today raised to ‘AA (sf)’ from ‘A+ (sf)’ its credit rating on Asset Backed European Securitisation Transaction Five S.A.’s class B notes. At the same time, we have affirmed our ‘AAA (sf)’ rating on the class A notes.
Today’s rating actions follow our review of the transaction’s performance. In our review, we considered the transaction’s performance data, structure, and our view of the stabilizing German economy. As a result, we have lowered our gross loss expectations.
The latest economic indicators suggest that Europe is entering into a new recessionary period after three quarters of negative or flat growth. Our base-case scenario for Germany forecasts that GDP growth will increase to 1.7% in 2014 from 1.2% in 2013 and unemployment rates will stay stable at 5% in 2013 and 2014 (see “The Eurozone Enters An Uncertain 2013 As The New Recession Drags On,” published on Dec. 13, 2012). In our view, changes in unemployment rates are one of the key forces that determine portfolio performance, such as this portfolio of auto loans to private customers. We have set our credit assumptions to reflect this challenging outlook.
We have reduced our baseline default rate for the securitized portfolio to 1.32% from 2.8% of the closing pool balance. This reflects the good performance observed so far and our assumption of a continued stabilization of the German economy. We have also considered any additional residual value risk. We have analyzed credit risk based on our “European Consumer Finance Criteria,” published on March 10, 2000.
Sequential Payment Structure
Our ratings on the class A and B notes reflect our assessment of the transaction’s payment structure. As the notes repay sequentially, credit enhancement has built up significantly for the rated classes of notes as the junior class M notes only redeem if the class A and B are fully repaid. Our analysis indicates that the credit enhancement available to the rated notes is sufficient to withstand the credit and cash flow stresses that we apply at a ‘AAA (sf)’ rating level for the class A notes and a ‘AA (sf)’ rating level for the class B notes.
Our ratings on the class A and B notes also reflect our opinion that the counterparty risk that the transaction is exposed to is adequately mitigated through the replacement mechanisms in the transaction documents. The transaction is exposed to BNP Paribas (A+/Negative/A-1) as account bank as well as Banca IMI SpA (BBB+/Negative/A-2) and Credit Agricole Corporate and Investment Bank (A/Negative/A-1) as swap counterparties. We have modeled the transaction without the support of the swap, as the transaction documents do not provide for mitigants to achieve a rating higher than the issue credit rating on the swap counterparties plus one notch under our 2012 counterparty criteria. We have analyzed this counterparty risk by applying our 2012 counterparty criteria (see “Counterparty Risk Framework Methodology And Assumptions,” published on Nov. 29, 2012).
In our review, we have analyzed the effect of a moderate stress on the credit variables and their ultimate effect on the ratings on the notes (see “Scenario Analysis: Gross Default Rates And Excess Spread Hold The Answer To Future European Auto ABS Performance,” published on May 12, 2009). We have run two scenarios, under both regulated and rapid amortization, the results of which are in line with our credit stability criteria (see “Methodology: Credit Stability Criteria,” published on May 3, 2010).
We have reviewed the transaction’s performance as part of our surveillance schedule. The transaction’s performance has been better than our expectations at closing, with low levels of cumulative gross losses observed (0.46%) at a pool factor of 25% (the percentage of the pool’s outstanding aggregate principal balance). We have therefore reduced our default base case assumption to 1.32% from 2.8% at closing. The revised base case assumption includes our future loss expectations and the observed losses to date. Based on the sequential paydown of the notes and the good asset performance, credit enhancement has increased for both classes of notes. Therefore, we have raised to ‘AA (sf)’ from ‘A+ (sf)’ our rating on the class B notes and affirmed our ‘AAA (sf)’ rating on the class A notes.
The notes are German loan receivable asset-backed securities (ABS) issued through Asset Backed European Securitisation Transaction Five. The transaction securitizes auto loan receivables, originated by FGA Bank Germany GmbH.
-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Methodology: Credit Stability Criteria, May 3, 2010
-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008
-- European Consumer Finance Criteria, March 10, 2000
-- The Eurozone Enters An Uncertain 2013 As The New Recession Drags On, Dec. 13, 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
-- Scenario Analysis: Gross Default Rates And Excess Spread Hold The Answer To Future European Auto ABS Performance, May 12, 2009
-- European Auto ABS Index Report, published quarterly